LHC Bars FIA Wilful Default Action Before Court Finding
The Lahore High Court has ruled that an FIA wilful default prosecution cannot start against a bank customer until a banking court has first proved the allegation. The ruling stops banks from using criminal cases to recover loans, and protects borrowers from arrest before a court has decided they deliberately refused to pay.
A division bench of Justice Jawad Hassan and Justice Abid Hussain Chattha issued the ruling, announced on 28 October 2026. It allowed petitions by Qaiser Shabbir and others against FIA notices sent after complaints by financial institutions.
Dawn reported the judgment in its edition of 5 November, and ProPakistani reported the ruling the same day.
The FIA wilful default case before the court
The petitioners had challenged FIA notices issued after financial institutions complained under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001.
In each case, the institution had already sued the petitioner to recover the money. The suits had been decreed, many by consent, or were pending in appeal or execution when the institutions complained to the FIA.
The petitioners’ lawyers argued that the civil and criminal parts of the law are interwoven, and that wilful default must first be proved before the banking court. A customer cannot be called a defaulter, they said, unless the breach has been conclusively decided by the banking court and the appellate court.
Why the court sided with the borrowers
The bench agreed. Justice Chattha’s judgment held that wilful default is a distinct species of default. A recovery suit only fixes the amount payable, the court said, and the law requires a 30-day payment demand before a complaint.
The court first rejected the objection that the petitions could not be heard, noting that judicial review is open where notices are issued without jurisdiction, with mala fide intent, or against the parent statute.
The respondents argued that each part of the offence stands on its own and that the FIA has exclusive jurisdiction under Rule 5 of the Rules 2018. The bench rejected that case.
The court also disagreed with a 2019 three-member LHC bench ruling, in Mian Ayaz Anwar versus the State Bank of Pakistan, that Sections 2(g)(ii) and (iii) need no prior civil determination. The bench rejected the practice of letting criminal proceedings start and then staying them. That approach, the court said, would hand institutions a coercive tool to recover undetermined sums through FIRs and arrests.
The bench held that the FIA’s powers flow from the ordinance and the 2018 Rules, not from the FIA Act. It allowed the petitions and set aside the FIA notices, issued without the required prior finding by a banking court.
What wilful default means, and why the distinction matters
Ordinary default means a borrower has not paid. Wilful default means the borrower could pay but deliberately chose not to. The difference matters because wilful default carries criminal punishment.
The ruling draws a clear line. A bank may sue to recover what it is owed, but it cannot ask the FIA to arrest a customer for wilful default until the banking court has first found that the default was deliberate.
The decision will affect banks across Pakistan, which have often used FIA complaints to press borrowers. Feature Pakistan has reported on the FBR’s plan to scrap the super tax in phases and Pakistan’s shift to a new long-term borrowing formula, and on the LHC’s ruling on ordnance factories compensation and the FCC’s ruling that its observations bind the Supreme Court.
What happens next
Banks must now secure a banking court finding of wilful default before approaching the FIA, and customers who receive FIA notices can ask whether a banking court decided the allegation first. The decision may be appealed, but until then it stands as the law in Punjab.
Frequently asked questions
What did the Lahore High Court decide?
The court ruled that the FIA cannot start criminal proceedings for wilful default until a banking court has first established the allegation. It allowed the petitions and set aside the FIA notices.
What is wilful default?
Wilful default means a borrower deliberately refused to pay even though they could. Ordinary default only means the money was not paid.
Which law was involved?
The Financial Institutions (Recovery of Finances) Ordinance, 2001, and the Rules made under it in 2018. The FIA’s powers in these cases come from the ordinance and the Rules, not the FIA Act.
What must happen before the FIA can act?
A bank must first get a banking court to decide that the customer wilfully defaulted. The law also requires a 30-day payment demand before a complaint.
Who decided the case?
A division bench of Justice Jawad Hassan and Justice Abid Hussain Chattha. Justice Chattha authored the judgment, announced on 28 October 2026.
