NPLs & LEGAL

FRAMEWORK FOR
RECOVERY

ISSUES &
REMEDIAL
MEASURES
FACILITATED BY
ADNAN ADIL HUSSAIN.
WHAT IS “DOCUMENTATION”

Customer related Account

Opening Documents.

Pre-Sanction Documents.

Post Sanction Documents.

FOREX related Documents.

Monitoring Documents.

SWAP Documents.

Rescheduling/Restructuring
Documents.
 DOCUMENTATION

CONVENTIONAL ISLAMIC

Encumbrance Encumbrance
Creation Recording

Standard Charge
Limited Company
Documents

Property Related Entities (other than

Documents limited companies
 ISLAMIC MODES OF FINANCING

• SBP CIRCULAR 2003

• Islamic banking Sharia Compliance
Instructions regarding financing were issued on
April 15, 2005
• IBD Circular No: 02 of 2008 dated 25-03-2008.
POST SANCTION DOCUMENTATION

Charge Creation
• Moveable Assets
• Immoveable Assets
Recording of Charge /Lien
Marking.
• Moveable Assets
• Immoveable Assets
Why Documents are sought

Evidence in Use in
Negotiation Litigation
CIVIL WRONG AND CRIMINAL
OFFENCE

Criminal wrongs are considered to

be wrongs against the community as a whole.

A criminal act is also called an ‘offence’, because

such an act offends or challenges the
command/authority of the law of the sovereign or
the ruler, i.e., the State
Civil wrongs are considered to be wrong against
the individual.
LEGAL EFFECTS OF
DOCUMENTATION

Documents
narrating
promise,
undertaking
• Documents having effects in criminal , oaths,
litigation promise etc
• Documents having effects in Civil
Litigation Documents
narrating
agreements,
payment
options etc
 STEP IN CREDIT AND APPLICABLE LAW
STEP LAW

Type of Property (Legal Opinion) TPA, STA & Land Revenue Act (LRA),
Companies Act 2017, Contract Act,

Creation of Encumbrance (Moveable) AND Contract Act, Secured Transaction Act 2016
RECORDING OF SECURITY INTEREST

Creation of Encumbrance (immoveable) TPA, LAP, Registration Act, Stamp Act

(provincial)

Recording of encumbrance (other than LAP, STA, LRA, Registration Act

Limited Companies)

Recording of encumbrance (Limited LAP, LRA, STA, Companies Act 2017

Companies)
 STEP IN RECOVERY AND APPLICABLE LAWS
STEP LAW
Illegal possession/sale/ alienation of Property Section 20 FIRO 2001.
FIA
Sale of moveable
• . (pledged) property before Section 176 of Contract Act
decree STA 2016
Sale of Immoveable property before decree Section 15 FIRO 2001

Filing of civil banking suit Section 9 FIRO 2001

Filing of criminal complaint in case of FIRO 2001 (section 20)
dishonored cheque
Sale of immoveable property-after decree FIRO 2001 (section 19)

Auctions and objection FIO 2001 (Section 19),

Order 21 Rule 67, 68, 90 CPC (MFB)
For Micro Finance Banks- Filing of Suit & Order 37 CPC (Decree)
Execution Order 21 Rule 67-90 (Execution)
LRA Section 82-90
For Micro Finance Banks-Criminal Cases PPC, CRPC
 COLLECTION &
RECOVERY
• Debt collection and debt recovery are very similar
terms. Both involve trying to recoup money that’s
gone unpaid, but the crucial difference
involves who is trying to chase the debt payment.
• With debt collection, the Bank is chasing the debt
itself through its staff.
• With debt recovery, Bank enlists the help of a
third party including going in litigation.
 FINANCE ACCOUNT

Symptoms / Early warning signs

Watch-listing
Timely action Timely action

Loan would become Loan would be classified on time /

performing subjective based criteria

Remedial Actions/ Collection Department/

Recovery Companies

Not willful default Willful default

Suit filing Placement on

(civil/criminal)
ECL/ FIA

Sale of liquid securities

Invoking Sec-15 & 16

Suit filing

Borrower does not come Borrower come-up for

up for settlement settlement

Decree

Bank’s direct negotiated

settlements
Execution

Resulting Resulting
Recovery Recovery

Write-off/Waiver Write-off/Waiver
(if any) (if any)
IDENTIFICATION OF ACCOUNTS
• Identification of accounts falling under the following two buckets;
– EWL Accounts
– Classified Accounts
Early Warning Accounts:

Identification of accounts at an early stage and taking to save the

accounts from becoming loss to the Bank.

EW account is one that has risks or potential weaknesses of a material

nature requiring monitoring or close attention by the management. If
these weaknesses are left uncovered they may result in deterioration
of the repayment prospects at some future time requiring Bank to take
an exit
 CLASSIFIED ACCOUNTS
Once a loan is classified it should be managed under dedicated
remedial process (remedial actions advised later in this
chapter) aiming at:
• To regularize the account by adopting suitable work-out
methods
• To prevent further deterioration in classification category
because of subjective evaluation (again using watch-list
factors)
• If the improvement efforts fail, to make the account regular
or take an exit, which entails recalling of the outstanding
facility amount and initiation of legal action (civil or
criminal) in case of failure of the customer to adjust the
account
 CLASSIFICATION
R-8 (Corporate & Comemrcial Prudential Regulations)

• Banks/DFIs shall observe the prudential guidelines given at

Annexure-V in the matter of classification of their asset portfolio and
provisioning there-against on time based criteria.
• Subjective evaluation of performing and non-performing credit
portfolio shall be made for risk assessment and, where considered
necessary, any account including the performing account will be
classified, and the category of classification determined on the basis
of time based criteria shall be further downgraded.
• Such evaluation shall be carried out on the basis of
– credit worthiness of the borrower,
– its cash flow, operation in the account,
– adequacy of the security, inclusive of its realizable value and
– documentation covering the advances.
BENEFIT OF COLLATERAL/SECURITY HELD
– Liquid assets,
– pledged stock,
– plant & machinery under charge,
– property having registered or equitable mortgage
– pari-passu charge shall be considered on proportionate basis
of outstanding amount
– Hypothecated assets, excluding plant & machinery under
charge, shall not be considered.
• The evaluators should also mention in their report the assumptions made, the
calculations / formulae / basis used and the method adopted in determination of the
values i.e. the Market Value and Forced Sale Value (FSV)
• The valuation process will include conducting a “Full-scope Valuation” of the assets in
the first year and then followed by “Desktop Valuations” in the second and third
year. Full-scope Valuation shall be valid for three years from the date of last Full-scope
Valuation.
• In case the loan amount exceeds Rs 100 million, the Desktop Valuation will be done by
the same evaluator, who had conducted the Full-scope Valuation
 BENEFIT OF COLLATERAL/SECURITY HELD
Liquid Assets:
• Guarantees issued by domestic banks/DFIs (regardless of their rating) when received as collateral by
banks/DFIs will be treated at par with liquid assets.
• Valuation of Liquid Assets shall be determined by the bank / DFI itself and verified by the external
auditors.
• However, in the case of pledged shares of listed companies, values should be taken at market value
as per active list of Stock Exchange(s) on the balance sheet date.
• Valuation of shares pledged against loans/advances shall be considered only if such shares are in
dematerialized form in the Central Depository Company of Pakistan (CDC), otherwise these will not
be admissible for deduction as liquid assets while determining required provisions.
Mortgaged Property and Plant & Machinery under Charge:
• Valuation of residential, commercial & industrial property (land and building only) and plant &
machinery would be accepted as determined by evaluators in accordance with the criteria.
Pledged Stocks:
• In case of pledged stocks of perishable and non-perishable goods, forced sale value should be
provided by evaluators, and such valuation should not be more than six months old, at each balance
sheet date.
• The goods should be perfectly pledged, the operation of the godown(s) or warehouse(s) should be in
the control of the bank/DFI and regular valid insurance and other documents should be available.
• In case of perishable goods, the evaluator should also give the approximate date of complete
erosion of value
 EXIT STRATEGY
• The EXIT strategy is not based on a reactive approach, it
rather follows a preventive model.
• It envisages identification of accounts which show up
sign(s) of weaknesses which might require bank to make it
take an exit in future date, if corrective steps are not taken
or if taken are proved futile.
• It is a real time effort and requires gradual withdrawal
instead of a sudden exit, unless a criminal offence occurs
or borrower is identified as a Willful defaulter in which
event the account shall be classified straight away as
LOSS and EXIT measures will be started immediately.
 CONCEPT OF EXIT STRATEGY
• In its ambit would come all classified accounts as well as those accounts which
would show symptoms of Early Warning Signals (that is account on Watch
List).

• As it covers accounts of varying intensity of problems each requiring treatment

of varying potency, it has multi zones ranging from mild to intense zones.

• At the start it is merely an alert posture, gradually tightening the credit policies
or restoring the confidence depending on the developments in the accounts,
and eventually ceasing the relationship if problem is not fixed.

• Classified accounts shall lie in the Medium Zone and shall be under Remedial
Management. If the accounts do not show any improvement, it will be moved
to fast track zone either for an early exit or regularization
ROAD MAP OF EXIT STRATEGY
• Once an account gets classified, it will be determined whether
the causes of the problem are based on willful or non–willful
intentions of the borrower. In case of non-willful accounts
taking remedial steps and / or taking adopting Exit steps
strategy
• In cases of willful default the “exit” strategy will be adopted
which would necessarily entail recalling of the outstanding and
initiation of legal action (civil or criminal) in case of failure of
the customer to:
– Partially settle up-front.
– Agree on acceptable repayment schedule and
– Agree to rectify the causes of problem
– Transfer to SAM (exit from the Business Group to SAM for remedial
management), if position/account continues to deteriorate
– Exit from the Bank
 BPRD CIRCULAR 13 OF 2016
• Restructuring means such concessions to the borrower,
due to borrowers’ financial difficulty, which the
bank/DFI would not otherwise consider. Restructuring
normally involves modification in the terms & conditions
of the financing / securities and generally includes,
amongst others, alteration of repayment period, repayable
amount, installment amount, mark-up rates (due to
reasons other than competitive pricing) etc.
• Rescheduling means such concession in the grace period
or modification in the repayment dates of principal loan
amount (without changing overall loan tenor), due to
borrowers’ financial difficulty, which the bank/DFI
would not otherwise consider.
 LIMITATION
• Banks and financial institutions finance the
borrower after executing the security
documents. On default of the finance, the bank
and FI have to initiate recovery action and file
suit against the borrower.
• The recovery act and court only permit action
if the claim is within the period of limitation.
• The Limitation Act 1908 defines the limitation
period of various security documents.
 THE JURISTIC RATIONALE
• The juristic rationale justifying such bars rests
on several factors. First, the law assists the
wakeful and not the sleeping or the indolent.
• Secondly, after the lapse of a certain period of
time, the memory of witnesses may fade;
evidence may get lost; and documents may
become unavailable. The law has to take into
account all these factors. It therefore
discourages the filing of stale claims before
the courts.
 THE LIMITATION ACT 1908
• In Pakistan, statute prescribing the limitation
periods within which suits and actions can be
instituted is the Limitation Act, 1908.
• The scheme of the Act is such, that
– whilst the rules relating to computation of time and
regulating the course and manner for providing relief
are contained in the main body of the Act (comprising
various “sections”),
– the specific limitation periods within which suits and
actions are required to be instituted, are contained in
the First Schedule to the Act (comprising several
articles).
 PERIODS OF LIMITATION
The normal limitation period for suits and actions based on contractual causes of action is
three years
• The limitation period for the specific
performance of a contract to be three years,
from the date fixed for the performance of the
contract, or where no such date is fixed, then,
from the date when the plaintiff has notice that
performance has been refused.
• The limitation period for the rescission of a
contract to be three years, from the date on which
the facts that entitle a plaintiff to rescind the
contract first become known to him.
 PERIODS OF LIMITAITON
• The limitation period for compensation for the breach of a
contract (express or implied), not in writing, which is not
registered (and not provided for in any other article). In such a
case, the suit for compensation can be brought within a period
of three years from the date when the contract is broken, or
(where there are successive breaches), from the date when the
breach in respect of which the suit is instituted occurs, or
(where the breach is continuing) when it ceases.
• The limitation period for compensation for breach of a
contract in writing, which is registered to be six years. The
period of limitation would begin to run from the same date as
in the case of a suit brought on a similar contract not
registered.
RELAXATION OR EXTENSION OF THE PERIOD
OF LIMITATION
• Section 19 of the Limitation Act provides that where,
prior to the expiry of the period of limitation prescribed
for bringing an action under the Act, there is an
acknowledgement of liability, made in writing and
signed by the party against whom the claim is made, a
fresh period of limitation will start from the date of such
acknowledgement.
• The limitation period for a suit is also subject to
relaxation, if the defendant has been out of the country.
Section 13 of the Act states that in computing the period
of limitation, any time spent by the defendant outside of
Pakistan shall be excluded
 RELAXATION OR EXTENSION OF THE PERIOD OF
LIMITATION
• Under section 14 of the Act, in computing the period of
limitation prescribed by the Act, the time spent by the
plaintiff in prosecuting with due diligence another civil
proceeding shall be excluded from computation of the
limitation period. The proceedings of the other suit should
have been founded on the same cause of action and
prosecuted in good faith in a court, which, from defect of
jurisdiction, or other cause of a like nature, is unable to
entertain the claim.
• Section 18 of the Act provides that where a person who has
a right to institute a suit has, by means of fraud, been kept
from the knowledge of such right, the limitation period will
commerce when the fraud becomes known to him.
 BANKING COURT PROCEEDINGS
• Plaint (section 9) with applications under section 16 and section 151 of CPC
• Permission to Leave & Appear to Defend (PLA). (section 10)
• Interim Decree under Section 11/ Interim or Final Decree under section 14
(mortgage based)/PLA allowed
• If PLA allowed then following steps will be observed. If decree is issued it will
convert into execution.
• Framing of Issues
• Questions of Fact
• Questions of Law
• Arguments
• Witnesses
• Decree
• Appeal
• Single Bench High Court
• DB High Court (Intra Court Apeal)
• Supreme Court
• Execution. (section 19) with or without intervention of court.
• Criminal Complaint under section 20
 Jurisdiction issues
• Agreement to finance
and sale purchase
ISSUES IN agreements
DOCUMENTATIO
N-AGREEMENT
TO FINANCE
Pricing/ Mark up
• KIBOR Clause &
Purchase Price clubbed
with Unislamic &
Unconstitutional
 AGREEMENT TO FINANCE-CONVENTIONAL
HOW MARK UP IS CALCUALTED
. BUY BACK AGREEMENT

SELLS
GOODS

SALE
PRICE
BANK CUSTOMER
BUYS BACK GOODS
DEFERRED PAYMENT PURCHASE PRICE (IN LUMP SUM OR
INSTALMENT)

PRIMARY
IMMOVEABLE MOVEABLE SECURITY
Guarante
e&
Indemnit
y
CHARGE HYPOTHEC
MORTGAGE PLEDGE
SEC 100 ATION
 SALE OF STOCKS
Contract Act 1872, Pledge of Goods
• 176. Pawnee’s right where pawnor makes default: If the
pawnor makes default in payment of the debt, or
performance, at the stipulated time of the promise in
respect of which the goods were pledged, the Pawnee may
bring a suit against the pawnor upon the debt or promise,
and retain the goods pledged as a collateral security; or he
may sell the thing pledged on giving the pawnor
reasonable notice of the sale.
• If the proceeds of such sale are less than the amount due in
respect of the debt or promise, the pawnor is still liable to
pay the balance. If the proceeds of the sale are greater than
the amount so due, Pawnee shall pay over the surplus to
the pawnor
 TYPES OF SHORTAGE
Decrease in quantity

• Due to Fire
• Due to natural calamity.
• Due to theft/burglary
• Due to forced lifting of the customer
• Due to mischievous lifting of stocks by the
customer in connivance with Muccaddum.
• Due to irregular/improper/delayed issuance or
Non-Issuance of Delivery Order by the bank.
• Due to Improper calculation of DP.
 TYPES OF SHORTAGE
Decrease in quality
• Due to Moisture/pests or other instant force majure
problems
• Mal-handling/careless control of stocks which may contain
thousands of instances like Cotton bales needs moisture at
certain degree a little bit of carelessness may create havoc.
• Mal-handling/careless control of stocks with malafide
intentions.
• Natural Calamity eg; rain, heat etc
• Stock being older than 180 days in violation of FIFO not
observed.
• Subjective rating/grading of stocks by auditor.
LEGAL COURSE OF ACTION IN CASE OF
SHORTAGE IN PLEDGEN OF STOCKS

• Criminal Action against Muccaddum?

• Criminal action by Muccaddum?
• Criminal Action against Customer and Muccaddum
Jointly?
• Legal Repercussions of filing criminal application
against agent?
• Effects on Suit for recovery?
• Police or FIA? Rule 5 of FIRO Rules 2018
 FLOATING, FIXED & PARI PASSU CHARGE

• Floating Charge means a charge created by a customer, on all present

and after-acquired movable property or a certain class of present and
after-acquired movable property (including receivables or inventory), in
favour of a secured creditor and pursuant to which the customer is free
to deal with the movable property in the ordinary course of its business
until the crystallization, in terms of the security agreement, of such
charge into a fixed charge; (Section 2 sub-section 21 of STA 2016)
• Fixed charge is a charge on a definite property which can be
ascertained and the company cannot dispose of the property without the
consent of the charge holder. However the company is allowed to use it
for business purpose. Generally fixed charge is created on fixed assets
such as plant and machinery.
• Pari-passu charge shall be considered on proportionate basis of
outstanding amount (PR- ANNEX VI) Under this, the charge is shared
by more than one lender in the ratio of their outstanding amount. The
prior consent of the existing charge holder(s) is required by the
company
 FIRST, EXCLUSIVE, RANKING, FURTHER CHARGE

• First Charge: A legal right under which the Creditor has the right to decide on
what to do with a property if the borrower fails to maintain the repayments
• Second Charge: Where a second loan is backed by the same assets on which a
first charge already exists, the subsequent charge holder is called "second
charge". This comes into effect once the holder of the first charge has sold the
assets and received their dues. The second charge holder is entitled to receive
the residual value of assets once the first charge holder has been satisfied.
• Ranking Charge: If no priority is given to charge, the charge as per “priority in
time” is called ranking charge
• Exclusive charge – The security under the exclusive charge is provided to a
particular lender only.
• Further charge – With the consent of the first charge holder, the particular
assets on which charge is already created may be provided to other lenders as
second charge. In case of liquidation of assets, the first charge holder has the
right to recover his dues and the balance is recovered by the second charge
holder followed by others
 ENFORCEMENT OF SECURITY INTEREST
FI SECURED TRANSACTION ACT 2016

A secured creditor may enforce the following security interests without the intervention of the
courts:
•(a) a pledge;
•(b) an assignment of receivables by way of security;
•(c) a security interest in a negotiable instrument that is perfected by possession;
•(d) a security interest in a right to payment of funds credited in a deposit account that is perfected
by control;
•(e) a security interest in a motor vehicle based on retention of title arrangement; and
•(f) a security interest in a title document that is perfected by possession.

At any time after a secured creditor decides to enforce a pledge after an occurrence of an event of
default- the secured creditor may give a written notice of demand to the customer in writing and
require the customer to satisfy his obligation within fourteen days from the date of receipt of the
notice. The notice shall give details of the amount payable by the customer and specify, the
collateral that may be enforced in the event of the customer failing to satisfy his obligation:

Provided that the secured creditor may dispense with such notice if in the reasonable opinion of the
secured creditor, the collateral is in danger of being wasted, misappropriated or is perishable; or the
amount of finance exceeds ten million rupees and the security agreement provides for such
dispensation.
 RECOVERY FROM MOVEABLE ASSETS
FI SECURED TRANSACTION ACT 2016
• A secured creditor may, after an occurrence of an event of default, enforce a
security interest by filing a recovery suit against the customer in
the Banking Court. The provisions of the Recovery Ordinance shall
apply mutatis mutandis for the purposes of filing a recovery suit against the
customer. The provisions of the Recovery Ordinance relating to the
enforcement of a mortgage over immovable property (including section 15
regarding foreclosure) shall not be applicable with respect to moveable
property. (Section 57).
• A secured creditor may enforce certain security interests without the
intervention of the courts. The right to enforce an assignment of receivables
by way of security and a security interest in a negotiable instrument in
terms of this section includes the right to enforce any security over movable
property that secures the payment of the receivables or the negotiable
instrument . Meaning thereby the security kept as collateral against
receivables under Demand Promissory Note (DP Note) executed in favor of
a Financial Institution can be enforced without intervention of the court.
(Section 58-Sub Section 3)
MOVEABLE PROPERTY ATTACHED TO
IMMOVEABLE
If the collateral is in the nature of property attached to immovable property;
 the secured creditor may, upon enforcement of the security interest,
remove such property
 and shall reimburse the mortgagee or owner of the immovable property
to which such property is attached for the cost of repair of any damage
to the immovable property resulting from the removal.
 the secured creditor shall not be required to reimburse the mortgagee or
owner of the immovable property for any reduction in value of the
immovable property resulting from the removal of the property attached
to immovable property.
 The secured creditor shall be entitled to recover from the customer any
expenses incurred by him for the purposes of removing the property
attached to immovable property.

•Section 60 of Financial Institution Secured Transaction Act 2016

 Proviso of Section 58 F, Transfer of Property Act 1882
not being made applicable for Land Revenue Properties

Equitable mortgage of Properties having no title deed and

application of Section 14, 15 of FIRO 2001.

ISSUES IN No Land Titling Law in Pakistan. Freehold or Possessory

DOCUMENTATIO Rights. “Mortgage” issues affecting section 14 of final
decrees and section 15 of foreclosure.
N-MORTGAGE
Separate TPA 1882 for every province. Section 1 of TPA
1882, applicability & extension of certain sections (Rs
100 limit for registration of sale deed, mortgage deed,
lease deed and gift deed )

Rule 135 of Registration Rules 1929.

 DISCLAIMERS OF
REGISTRATION RULES 1929
Registering officers not concerned with validity of document.---
• “Registering officers should bear in mind that they are in no way
concerned with the validity of documents brought to them for registration,
and that it would be wrong for them to refuse to register on any such
grounds as the following, e.g., that the executant was dealing with
property not belonging to him, or that the instrument infringed that rights
of third persons not parties to the transaction, or that the transaction was
fraudulent or opposed to public policy. These and similar matters are for
decision, if necessary, by competent Courts of law and registering officers,
as such, have nothing to do with them. If the document is presented in a
proper manner by a competent person at the proper office within the time
allowed by law and if the registering officer is satisfied that the alleged
executant is the person he represents himself to be, and if such person
admits execution, the registering officer is bound to register the
document without regard to its possible effects”
• (Rule 135 of Registration Rules 1929)
 TYPES OF LAND HOLDING THAT CAN
BE MORTGAGED
1. Absolute Ownership (Free
Hold)
2. Possession rights
I. Allotment Rights by Statutory
Bodies (authorities/coop
societies registered under the
relevant act). (exclusive &
Perpetual)
II. Leasehold Rights (exclusive & READ THE FIRST DOCUMENT TO DETERMINE
Perpetual) THE TYPE OF RIGHT

III. Licence (exclusive but not

Perpetual)
IV. Easement (non-exclusive &
Perpetual)
 INSTANCES OF TYPES OF PROPERTIES
Free Hold Lease Allotment

Revenue Based Properties MEO properties Cooperative Societies

Urban/Property tax Provincial Government Development Authorities

Properties owned Properties in Sindh

Evacuee Trust Properties Un-cultivatable Hills, Industrial Estates/

deserts/ Authorities Government special
Schemes
 NAPHDA-HOUSE FINANCE & MORTGAGES
25. House finance for a scheme.—
• (1) Where house finance has been provided by a financial institution
for immovable property in a scheme pursuant to an arrangement
between the Authority and the financial institution, all disputes
between the financial institution and the relevant borrowers in the
scheme shall, notwithstanding anything contained in any other law, be
adjudicated upon by the Adjudicator. The process and requirements
for lodging and adjudication of a claim before the Adjudicator shall be
prescribed through regulations.
• (2) Any party aggrieved of the final judgment of the Adjudicator
under sub-section (1) may, within thirty days of the final judgment,
file an appeal before the Appellate Tribunal. The process and
requirements for lodging and adjudication of an appeal before the
Appellate Tribunal shall be prescribed through regulations.
• (3) An appeal to the Supreme Court from a final judgment or order of
the Appellate Tribunal shall lie only if the Supreme Court grants leave
to appeal.
 JURISDICTION (NAPHDA)
46. Bar of jurisdiction.-
• (1) Notwithstanding anything provided in any other law for the time being in
force, but save as expressly provided in this Ordinance–
• (a) no court or other authority whatsoever shall have jurisdiction to entertain, or
to adjudicate upon, any matter which the Authority, the Chairman, the Registrar
or a Adjudicator, enforcement inspector or any other person is empowered by or
under this Ordinance, or the rules or regulations framed thereunder, to dispose
of or to determine;
• (b) the validity of anything done or an order passed by the Authority, the
Chairman, the Registrar or a Adjudicator, enforcement inspector or any other
person empowered by or under this Ordinance, or the rules or regulations
framed thereunder, shall not be called in question in any manner whatever
before or by any court or other authority whatsoever; and
• (c) no court or other authority whatsoever shall be competent to grant any
injunction or pass any other order in relation to any proceedings under this
Ordinance or any rules or regulations framed thereunder before the Authority,
the Chairman, the Registrar or a Adjudicator, enforcement inspector or any
other person empowered by or under this Ordinance, or the rules or regulations
framed thereunder
 PROPERTY OF THE PERSONAL GUARANTOR
• Section 16 of the Financial Institution (Recovery of Finances) Ordinance 2001
deals with the issue.
• “Attachment before judgment, injunction and appointment of Receivers.-
(1) Where the suit filed by a financial institution is for the recovery of any
amount through the sale of any property which is mortgaged, pledged,
hypothecated, assigned, or otherwise charged or which is the subject of any
obligation in favor of the financial institution as security for finance or for or
in relation to a finance lease, the Banking Court may, on application by the
financial institution, with a view to preventing such property from being
transferred, alienated, encumbered, wasted or otherwise dealt with in a manner
which is likely to impair or prejudice the security in favor of the financial
institution, or otherwise in the interest of justice 
• (a) restrain the customer and any other concerned person from
transferring, alienating, parting with possession or otherwise encumbering,
charging, disposing or dealing with the property in any manner;
• (b) Attach such property;
• (c) Transfer possession of such property to the financial institution; or
• (d) Appoint one or more Receivers of such property on such terms and
conditions as it may deem fit. “
 VIRES OF SECTION 15

• Vires is a Latin word and is defined as “powers”.

– An example of vires is having the authority to tell a
person what action they must take (intra vires).
– An example of vires is an action that is beyond the
powers as detailed in a law (ultra vires).
• Vires of Section 15 were challenged before various Courts,
whereby initially the Lahore High Court, Lahore vide its
judgement cited as 2009 CLD 257 declared section 15 as
ultra vires to the Constitution and ultimately the Honorable
Supreme Court of Pakistan upholding the earlier ruling,
declared Section 15 as ultra vires to the Constitution vide its
judgement cited as PLD 2014 SC 283.
 AMENDMENT & RULES

• The Legislature once more reintroduced Section 15 vide the

financial institutions (Recovery of finances) amendment act
2016.
• To further bring the legislation in line with the principles set
by Supreme Court, the “Financial Institutions (recovery of
Finances) Rules 2018” were promulgated.
• The vires of the same had been challenged once more,
however it was declared as intra vires by the Lahore High
Court in its judgement cited as 2020 CLD 638 LHC (2020
LHC 456), and the same was also upheld by the Honorable
Supreme Court of Pakistan on 22-10-2020.
 WHAT IS NEW IN SECTION 15
& RULES
• Independent chartered accountant firm is to determine the outstanding
liability of the customer,
• Mandatory upon the mortgagee / financial institution prior to enacting a
sale, to have the mortgaged property evaluated by three evaluators, so that
the true value of the property may be realized.
• The property has to be sold for a minimum reserve price.
• Restriction upon the financial institutions that it may only purchase the
property in the auction, if it pays an amount 10% greater than the highest
bidder.
• Right of redemption for the mortgagor, whereby he may match the bid of
the financial institution, and the mortgage property shall stand transferred
to him.
 WHAT IS NEW IN SECTION 15
& RULES

• Sale is effective seven days after the auction of property.

• Power to the Court to set aside the sale or issue an injunction
in relation to the sale on grounds of repayment of outstanding
amount, finding of fact that no mortgage actually exists,
deposit of mortgage amount etc
• A newly added ground of fraud in conduct of the sale.
• Granting the right to the mortgagor to apply to Court for setting
aside the sale
• Subsection 5 has been introduced allowing the Federal
Government to frame rules to administer the mode, mode of
conduct and the conduct of the sale proceedings, by virtue of
which the Financial Institutions (Recovery of finances) Rules
2018 were framed.
 Steps Heading Details
1 Forward the case • The case must initially be forwarded to a chartered accountant
to a chartered firm, which has neither been the Bank’s statutory auditor nor
accountant firm worked on any assignment with the Bank in the last three years.
Rule 3 (a)(i)
• The Chartered accountant shall give a 7 days’ notice to the
parties. Rule 3 (a) (iii)
• The chartered accountant firm shall present its report within
thirty days

2 Issuance of • Issuance of notice with 14-14-30 days for the repayment of

demand notices liability determined by CA firm.
to the customer

3 Evaluation of the • Three valuers are to be hired within 7 days of the expiry of the 30
property days’ notice. Rule 3 (b) (i)
• After 15 days of appointment, the valuers shall independently
evaluate the value of the mortgaged property and determine its
forced sale price. Rule 3 (b) (ii)

4 Publication in • a publication in one reputable English and Urdu newspaper in

newspaper the province in which the mortgaged property is situated
• above information must be sent to the mortgagor and other
mortgagees and all interested parties through a notice. Section 15
(c)
Steps Heading Details
The auction • commence after 15 days of the newspaper publication of the
notice
• The Highest bidder is required to deposit 25% of the bid amount,
within 2 business days and the remaining shall be deposited
within 15 days of initial deposit
• financial institution can participate in the bidding process, and
must bid 10% higher than the highest bidder
• In case the Bank wins the bid, it must then send a 3 days’ notice
to the mortgagor to match the Bank’s bid and purchase the
property
• If there is no bidder the auction must be cancelled and the entire
exercise repeated. If upon 3 auctions no bid is received, the Bank
may purchase the property at a price 10% higher than the
reserve price, after duly serving the mortgagor with a notice to
this effect
Delivery of • for the purpose of executing and registering the sale deed of the
possession and mortgaged property, the Bank shall be considered as the duly
post-sale process authorized attorney of the mortgagor
• sale deed can only be registered / executed after 7 days of the
auction
• Within 14 days of the sale, the Bank must file proper accounts of
the sale proceeds in the banking Court
Injunction • The Banking Court may grant an injunction on grounds that (i)
there is no mortgage (ii) there has been fraud in the mode or
conduct of the method of sale and the customer has suffered loss
which cannot be compensated by damages.
• all disputes relating to the sale of mortgaged properties and all
 CRIMINAL ACTION
Section 20 of FIO 2001
• 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 institution
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 trust receipt or other instrument or document or for the
purpose of effecting their sale and depositing the sale proceeds with the
financial institution; or
• (b) makes fraudulent mis-representation or commits a breach of an
obligation or representation made to a financial institution on the basis of
which the financial institution has granted a finance; or
• (c) subsequent to the creation of a mortgage in favour of a financial
institution, 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 institution; or
 CRIMINAL ACTION
Section 20 of FIO 2001
• (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 institution, 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 institution,
within a time to be fixed by the Banking Court, the property or the
value of the property or security.
 CRIMINAL ACTION
Section 20 of FIO 2001
• Explanation - Dishonesty may be presumed where a customer has not
deposited the sale proceeds of the property with the financial institution in
violation of the terms of the agreement between the financial institution 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 institution 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.
 CRIMINAL ACTION
Section 20 of FIO 2001
• (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 bailable, non-
cognizable and compoundable.
 Section 19 & LEA (FIO Rules 2018)
• 4. Sale of property after decree.- If the financial
institution decides to proceed under sub-section (3) of
section 19 of the Ordinance, then in addition to the
conditions as contained in the said section, rule 3
where relevant shall also apply mutatis mutandis.
• 5. Investigating agency.- The Federal
Investigation Agency shall be the agency to
investigate all complaints filed by the financial
institutions regarding willful default cases in terms of
sub-section (7) of section 20 of the Ordinance.
 WILLFUL DEFAULT
(Section 2-g FIRO)

“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

• (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
 TREATMENT OF WILLFUL DEFAULT
• 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
• (Section 20 (7) of FIRO 2001)
• The Federal Investigation Agency shall be the agency to
investigate all complaints filed by the financial institutions
regarding willful default cases in terms of sub-section (7) of
section 20 of the Ordinance
• (Rule 5 FIRO Rules 2018)
FOR MICRO FINANCE BANKS
• CRIMINAL ACTION UNDER 489 (F) PPC:
Cheque Amount Imprisonment

Upto Rs 1 M 3 Years or penalty of double the

amount

Upto Rs 5 M 5 years or penalty of double the

amount

Upto Rs 10 M and more 10 years or penalty of double the

amount
 FOR MICRO FINANCE BANKS
ORDER 37

• (a) suit upon bills of exchange, hundies and promissory notes;

(b) suits in which the plaintiff seeks only to recover a debt or liquidated
demand in money payable by the defendant, with or without interest
arising -

(i) on a written contract; or

(ii) on an enactment, where the sum sought to be recovered is a

fixed sum of money or in the nature of a debt (other than a penalty;
or

(iii) on a guarantee, where the claim against the principal is in

respect of a debt or liquidated demand only.
 PRUDENTIAL REGULATION FOR
COLLECTION -MFB
• Each MFB shall develop a code for debt collection
practices duly approved by its BoD.
• The code shall be inclusive of at least the following:
– i. Customers must be pre-informed in writing about the
consequences of non-repayment including legal remedies
available to the MFB.
– ii. Only lawful and acceptable business language and
professional attitude should be adopted in establishing
contact with clients.
– iii. MFBs should not harass customers’ family members.
However, necessary information could be obtained from
family, friends, or third parties if the customer is not in
contact.
 MICROFINANCE INSTITUTIONS
ORDINANCE, 2001
• PART-1: APPLICATIONS OF OTHER LAWS
• (2) Save as otherwise provided in this Ordinance, the Banking Companies
Ordinance and any other law for the time being in force relating to banking
companies or financial institutions shall not apply to microfinance
institutions licensed under this Ordinance and a microfinance institution
shall not be deemed to be a banking company for the purposes of the said
Ordinance, the State Bank of Pakistan Act, 1956 (XXXIII of 1956), or any
other law for the time being in force relating to banking companies.

• EFFECT
• Recoveries of the loans obtained from the Microfinance Institutions cannot
be made under the Recovery Ordinance 2001 through Banking Court.
• Recovery is made through summary suit under Order XXXVII(37) of Civil
Procedure Code 1908 (CPC)
 ORDER 37 CPC
RULE 2.
• Instituition of summary suits upon bills of exchange, etc: - (1) All suits upon
bills of exchange hundies or promissory notes, may, in case the plaintiff desires to
proceed hereunder be instituted by presenting a plaint in the form prescribed;
but the summons shall be in Form No.4 in Appendix B or in such other form as
may be from time to time prescribed.
• (2) In any case in which the plaint and summons are in such forms respectively the
defendant shall not appear or defend the suit unless he obtains leave from a
Judge as hereinafter provided so to appear and defend; and in default of his
obtaining such leave or of his appearance and defence in pursuance thereof, the
allegations in the plaint shall be deemed to be admitted and the plaintiff shall be
entitled to a decree
RULE 7
• Procedure suits: Save as provided by this Order the procedure in suits hereunder
shall be the same as the procedure in suits instituted in the ordinary manner.
 CIVIL SUIT & PROCEEDINGS
• Plaint
• Permission to Leave & Appear to Defend
• Decree/PLA allowed.
• If PLA allowed then following steps will be observed. If decree is issued it will convert into
execution
• Written Statement
• Framing of Issues
• Questions of Fact
• Questions of Law
• Arguments
• Witnesses
• Decree
• Appeal
• District Court
• Single Bench High Court
• DB High Court (Intra Court Apeal)
• Supreme Court
• Execution Under CPC Order 21 Rule 1 to 90
 RECOVERY MODES FOR AGRICULTURAL
FINANCE
• Section 4(vii) of LACIP ACT 1973 reads “If the land owner fails to repay the
amount of the loan or advance in accordance with the terms of his agreement
with the bank, the bank may, without prejudice to any other legal remedy
available to it, apply to the collector for the recovery of the amount in default as
an Arrear of Land Revenue and thereupon all the provision of the Revenue
Recovery Act, 1890 (I of 1890) shall apply to the recovery of the amount in
default as they apply to the recovery of an Arrear of Land Revenue.”
• Action will be taken by the Revenue Authorities for Recovery of the dues as
Arrears of Land Revenue under Provisions of the W.P. Land Revenue Act, 1967
as under:-

• Section– 81 A notice of demand to be issued by the Revenue Officer for payment

of the dues recoverable as Arrears of Land Revenue within 15 days.
• Section– 82 After lapse of 15 days of the notice of demand u/s 81, a “Further
Notice” is issued to the defaulter, and after lapse of 30 days of service of such
further notice, the Revenue Officer may issue a Warrant of Arrest directing a
particular Officer to Arrest and present the defaulter before the Revenue Officer.
 LAND REVENUE ACT, 1967
• Section– 83 Moveable propriety and uncut and un gathered crops may be distained
and sold by order of the Revenue Officer.
• Section– 84 Having exhausted the remedies by way of Arrest and sale of moveable
property, the District Officer Revenue (DOR) by an order may transfer and hand-over
possession of Agri-land of defaulter to any solvent Land Owner of the Estate for a period
not exceeding 15 years. The transferee of the Land will now become liable for making
payment of the relative arrears.
• Section– 86 When arrears of land revenue are due for more than one year, and
foregoing processes are not deemed sufficient, the DOR may, in addition to or instead of
all or any of these processes, order the annulment of existing assessment of the Agri-land
in respect of which the arrears are due.
• Section– 87 DOR shall issue a proclamation in respect of every attachment or
annulment of assessment of a land made on account of Arrears of Land Revenue. In this
case, all payments due from any person to the defaulter on account of Rents etc of the land
will be payable to the DOR.
• Section– 88 When all the foregoing processes are deemed to be insufficient, the
DOR, with prior approval of the Board of Revenue, may sell the Agri-land of the defaulter
towards satisfaction of the Arrears of Land Revenue.
• Section– 90 If the arrears can’t be recovered by way of the above processes, the
collector may effect the recovery by proceeding against other property, if any owned by
the defaulter and proclamation shall be issued prohibiting transfer or further charging of
such property.
LIMITED COMPANIES/ CORPORATIONS

– Corporate Restructuring Companies Act 2016

– Companies Act 2017
• Section 279 and 282 regarding delegating the power to commission
for reconstruction and amalgamation
• inclusion of Section 292 regarding Rehabilitation of Public Sector
Sick Companies
– Corporate Rehabilitation Act 2018
– Corporate Restructuring Companies Amendment Ordinance 2020.
– BPRD circular letter 34 of 2016 (narrating issuance of CRC Act)
– BPRD Circular 3 of 2020 (SBP Guidelines for Transfer of NPA to CRC)
– BPRD circular letter 34 of 2020 (CRC Amendment Ordinance )
– BPRD circular letter 40 of 2020 (SBP revised Guidelines for Transfer of
NPA to CRC
 ACTIONS &
HANDLING
ACTION Act/ Mechanism
Rehabilitation of Public Sector Sick Company • Identification/ Approval by Federal Minister
in Charge.
(AUTHORITY –FEDERAL MINISTER) • Section 292 of Companies Act 2017

Reconstruction &Amalgamation of the • Application under Section 279 of

Company Companies Act 2017.
• Power transferred to SECP instead of
(AUTHORITY-SECP, BOD) Companies bench as used to be section 284
of Companies Ordinance 1984.
• Wholly owned Companies, BOD can itself
approve amalgamation as per Section 284.
Rehabilitation of Limited Company having • Application by Debtor to the Court (High
more than Rs 100 M NPL Court Company bench) for mediation.
(AUTHORITY-COMPANY BENCH-HIGH • As per functions prescribed in section 7 of
COURT) Corporate Rehabilitation Act 2018
Restructuring, Rehabilitation, of NPA of any • Corporate Restructuring Act 2016 with July
entity 2020 amendments
(Rs 50 M and above) • Public Limited Company (Private or Public
Sector)
• Special Bench in High Court
• Company can be an agent or acquire NPA.
 COMPANIES ACT 2017
• 302. Company when deemed unable to pay its debts.—(1) A company shall be
deemed to be unable to pay its debts;
• (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum
exceeding one hundred thousand rupees, then due, has served on the company, by
causing the same to be delivered by registered post or otherwise, at its registered office, a
demand under his hand requiring the company to pay the sum so due and the company
has for thirty days thereafter neglected to pay the sum, or to secure or compound for it to
the reasonable satisfaction of the creditor; or

• (b) if execution or other process issued on a decree or order of any Court or any other
competent authority in favour of a creditor of the company is returned unsatisfied in
whole or in part; or

• (c) if it is proved to the satisfaction of the Court that the company is unable to pay its
debts, and, in determining whether a company is unable to pay its debts, the Court shall
take into account the contingent and prospective liabilities of the company.

• (2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been
duly given under the hand of the creditor if it is signed by an agent or legal adviser duly
authorized on his behalf
 INJUNCTION TO BANKING
SUIT?

• 307. Court may grant injunction.—The

Court may, at any time after presentation of the
petition for winding up a company under this
Act, and before making an order for its
winding up, upon the application of the
company itself or of any its creditors or
contributories, restrain further proceedings in
any suit or proceeding against the company,
upon such terms as the Court thinks fit.
 PROCEDURE OF COURT
SECTION 6

1. Petition or application setting out a concise statement of facts,

grounds and the relief claimed;
2. A written reply with particulars of set off, if any;
3. An affidavit of facts by the petitioner or applicant, or respondent, as
the case may be, including affidavits, if required, of other persons in
support of the case, duly attested by the oath commissioner, or as
may be provided under the rules;
4. Any application for discovery of documents or interim injunction, if
required;
5. A list of any case law along with a summary of the same on which
the petitioner or applicant is placing reliance
 PROCEDURE OF COURT

• Petition or application and the documents annexed therewith and the

same shall be served on the respondent through the bailiff or process-
server of the Court, through registered post, acknowledgement due, by
courier and by publication in one English language and one Urdu
language daily newspaper and, in addition, if so directed by the Court
through electronic modes such as, facsimile, email, or in such other
form or mode as may be notified by the Court.
• Written reply and particulars of set-off, if any, as set out in sub-section
(2) of this section with the concerned Registrar of the Company
Bench within thirty days from the date of first service
 PROCEDURE OF COURT
• Where the respondent fails to file the written reply within
the time prescribed in sub-section (4), a report shall be
submitted by the Registrar of the Company Bench before the
Court and the Court may pass necessary orders to proceed
exparte and announce the final order on the basis of the
documents available on record.
• Office of the Court, shall present the case file to the Court on
a day fixed under notice to the parties, within forty-five days
of the first service of notices or such extended time as may
be granted by the Court
• Then 2 adjournments allowed only.
 PROCEDURE OF COURT

• The Court may refer the matter to the Registrar of the

Company Bench or any other person for recording of
cross examination of the deponent who shall complete
recording of cross examination within thirty days from
the date of the order of the Court, or such extended time
as may be allowed by the Court which shall not be more
than fifteen days on payment of rupees ten thousand or
such higher amount as may be determined by the Court as
costs payable to the Court and to submit a report
accordingly
 PROCEDURE OF COURT

• The petition presented before the Court shall be

decided within a period of one hundred and
twenty days from the date of presentation of the
case and for this purpose the Court may, if it is in
the interest of justice, conduct the proceedings on a
day to day basis and if the Court deems fit it may
impose costs which may extend to one hundred
thousand rupees per day or such higher amount as
the Court may determine against any party to the
proceeding causing the delay.
 APPEAL

• Any person aggrieved by any judgment or final order of the

Court passed in its original jurisdiction under this Act may,
within sixty days, file a petition for leave to appeal in the
Supreme Court of Pakistan:
• Provided that no appeal or petition shall lie against any
interlocutory order of the Court.
• Save as otherwise expressly provided under this Act, the
provisions of the Qanun-e-Shahadat (Order)1984 (P.O. No.
X of 1984) and the Code of Civil Procedure, 1908 (Act V
of 1908) shall not apply to the proceedings under this
section except to such extent as the Court may determine in
its discretion
 .

THANK YOU
& REMEMBER
 FACILITATOR`S CONTACT
DETAILS

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DETAILED PROCEDURE OF
DETERMINATION OF LIABILITY UNDER
SECTION 15
Step Procedure as per FIO & FI Rules
Numbe
r
1. Other Mortgagees are also to be
requested by the Bank to submit their
claims to its Nominated Chartered
Accountant Firm along with
documents.
(the process being adopted for the bank
having contract with CA firm should be
followed with other mortgagees as
perll. The procedure is provided in step
3&4
2. If other mortgagees fail to submit their a)
claims, then the accountant firm shall
proceed to calculate the outstanding
mortgage money of the concerned bank b)
only. Rule 3 (a)(ii)
c)
Details of Procedure to be adopted
a) This is the case of consortium financing/ multiple borrowing.
b) The latest Ecib be generated to ascertain the creditors and their
reported claims.
c) Search Report may be collected from the property record to
ascertain duly registered liens on property.
d) Search report from SECP (in case of Limited Company).
e) List of other mortgagees be compiled.
f) Format of request letters, alongwith 7 days’ timeline to submit
their claims (with described documents) to other mortgagees be
prepared.
g) Standard format for submission of claims be prepared.
h) Request letters for submission of claim be sent bearing signature of
bank, to other “mortgagees”.(Creditors having claims in the subject
immoveable property other than mortgage are not included).
i) A desk for receipt of claims be established at CA firm to receive the
claims (preferred to be hard copies)
Failure of submission be established in presence of witnesses and a
notification of failure of submission be sent to the known creditor
(through Ecib, search report etc).
Reasonable opportunity to re-submit may be provided giving 3 days’
time.
A statement of conclusion of submission of claim be prepared by CA
firm with legal intimation to the bank.
3. The Chartered accountant shall give a 7 days’ notice to the a) Draft notice (asking customer to provide its version and amount of
parties. Rule 3 (a) (iii) outstanding liability segregated in above-referred heads) be
prepared. Pertinent to mention that this is not a notice of demand
(Simultaneously with Step 1& 2) and no figure of liability payable should be written in this
notice).
Certified copy of following documents be obtained from the bank
Registered Mortgage Deed (registered charge has priority over
unregistered charge)
Lien marking certificate
Memorandum of Deposit of Title Deed (Equitable Mortgage)
Title deed & corroborative documents to verify the subject property
with respect to determination of liability
Credit Proposal narrating security structure (liability against mortgaged
property)
Duly accepted facility offer letter by customer (may be reflecting the
finance portion granted against the mortgaged property)
Agreement to finance and other documents relating to mortgage of
property or conferring any right.
Authority letter/ permission to debit account in case of charges.
In case of multiple borrowing, ranking of charge be ascertained through
registered documents (SECP/registrar of assurances/land record
management department/authority)
In case of multiple properties and multiple borrowing, marshalling of
securities be made.
Any other document so required in this regard.
Last known address (as per last communication) of customer &
mortgagor be obtained from bank under signature of authorised
officers.
Authorised signatory of CA firm (who has been so authorised by Bank
through nomination contract) will sign the notice.
The CA firm will send notice to mortgagor/s and customer on their last
registered address.
The CA will also send notice to Bank to submit its version
4. CA Firm will Proceed to calculate the a) Determination of liability is determination of “mortgaged money” only, not entire
outstanding mortgage money of the concerned liability outstanding against other securities. “mortgage money (as per Section
bank only. 15-B)” means any finance or other amounts relating to a finance, penalties,
damages, charges or pecuniary liabilities, payment of which is secured for the
time being by the document by which the mortgage is effected or evidenced,
including any mortgage deed or memorandum of deposit of title deeds;
b) Determination of liability should be in the form of Section 9 of FIO 2001.
I. In case of multiple limits, the calculation will be made in any and all limits and
be commuted together.
II. Principle amount disbursed (including bank charges, Muccaddum/ evaluator/
Chartered Accountant/ other charges/ penalties/ taxes).
III. Principle Repaid by the Customer (charges payable to third party are recovered
earlier than principle)
IV. Amount of Principle outstanding (including charges as mentioned above).
V. Mark up so far applied during currency of limit
VI. Mark up so far paid back the customer
VII. Mark up outstanding
VIII. Accrued mark till the date of default.
IX. Cost of funds from the date of default
X. As per explanation of section 10 (4) of FIO 2001, the amount paid by customer
shall first be appropriated to other amounts relating to finance (mark up/charges)
and then against principle.
a) For determination of liabilities in above heads, the books of accounts be
consulted and alongwith signed and verified statements of accounts, standard
certificate of Bank as per Bankers Book Evidence Act be obtained. The central IT
system/ centralized hub of bank may be used for gathering of account
information.
b) The customer will submit its version. In case of denial of any liability, the CA
firm will proceed with the bank`s provided liability figures.
c) In case the customer submits the claim duly supported with documents
(acceptable as per Qanoon-e-Shahadat Ordinance 1984), the same will be
checked/audited by CA firm.
d) Proceeding sheet of such attendance and submission with affidavit (from
customer) be prepared
e) The CA firm will audit these accounts to ascertain its veracity and may seek
further documents from the either of the parties.
f) The legal principles of determination of liability as per FIO 2001, FI Rules 2018
and Civil Procedure Code 1908 (issuance of decree in case of money matters)
must be adhered.
5. The chartered accountant firm a) The report containing final determination of liability
shall present its report to as per above format with supporting documents will
“financial institution” within be prepared and be submitted to bank. The customer
thirty days from the date of needs not to be informed of this liability amount.
engagement. b) The caveats and assurances by CA firm must be
carefully vetted to avoid any contradiction with FIO
2001 and FI Rules 2018.

6. After the accountant has This step will be taken by the Bank and the CA firm will
determined the customers’ be disengaged from the process.
liability, a notice of 14 days
seeking payment of the
outstanding amounts as
determined by the Accountant
shall be served to the
customer. Section 15 (2)