Right of Sale

On March 10, 2020, the full Bench of Lahore High Court passed a judgement which upheld the re-enacted section 15 of Financial Institutions (Recovery of Finances) Ordinance, 2001 as constitutional. This has been a very significant development for recovery of impaired finances in terms of which banks, after fulfilling certain conditions, will have power to exercise right of foreclosure i.e selling mortgaged property without intervention of the Court.

The Financial Institutions (Recovery of Finances) Ordinance, first enacted in 2001, had given banks the right to sell mortgaged property without intervention of court under its Section 15 in case of default by the mortgagor.

In 2013, the original Section 15 was struck down by the Supreme Court on the grounds that it violated fundamental rights of borrowers.

At that time, PBA, along with the banks had filed review petitions but those were also rejected by the Apex Court.

Subsequently, PBA undertook the process of redrafting the deleted Section 15 and incorporating necessary checks and balances on the powers of banks to auction the mortgaged property. The draft was provided to SBP, which processed the re-drafted Section 15 as recommended by PBA, along with other amendments.

In 2016, following the joint efforts of PBA, SBP, the banks and the Federal Government, the redrafted Section 15 was promulgated, but the same was soon challenged by a customer of a bank in the Lahore High Court, leading to its suspension once again.

SBP was impleaded as a party in the said case while PBA, as suggested by SBP, opted to become a party in order to support the validity of the re-enacted Section 15.

In 2019, the Chief Justice constituted a full Bench for the hearing of the case following which, the judgment was reserved.

The March 10, 2020 judgment, upholding the validity of Section 15, has been hailed as a significant move for recovery of loans against mortgage of property and is a major achievement of PBA.