Authorization of Officers to File Suits for Financial Institutions

Authorization of Officers to File Suits for Financial Institutions Authorized Signatory Banking Case Laws Corporate Law Interpretation of Statutes Knowledge – Corporate Law Lahore High Court Litigation & Arbitration Remedial Statute Solutions - Corporate Law Mr. Justice Shams Mehmood Mirza in his judgment has decided the issue regarding authorization of officers to file suits for financial institutions in Regular First Appeal No. 655 of 2011.

1. This regular first appeal filed under section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance) calls into question judgment and decree dated 06.07.2011 passed by the banking court whereby the suit filed by the respondent bank against the appellant was decreed.

2. Facts in brief are that the respondent bank filed a suit for recovery of Rs.4,170,541.79 against the appellant due under a running finance (RF) facility. The appellant contested the suit by filing his application for leave to defend, which application was ultimately dismissed by the banking court on 06.07.2011 and consequently judgment and decree was passed in favour of respondent bank, hence this appeal.

3. Learned counsel for the appellant contended that the suit was not filed by a duly authorized person and that the statement of account was not prepared in accordance with law. Learned counsel for the respondent bank, on the other hand, supported the judgment and decree passed by the banking court.

4. Arguments heard and record perused.

5. The objection regarding the authorization of the officers who file suits on behalf of financial institutions on the basis of power of attorney is persistently raised regardless of the changes section 9 of the Ordinance has introduced with regard to institution of suits. It is, therefore, imperative that an authoritative pronouncement be made on this issue. A survey of the earlier banking laws and the provisions contained therein regarding authorization for filing suits would be appropriate, before proceeding any further in the matter, in order to set out the historical context in which the Ordinance was promulgated. It would also provide useful guidelines for interpreting section 9 of the Ordinance. Banking Companies (Recovery of Loans) Ordinance, 1979 was the foremost law which created a special forum for trying banking suits. The procedure adopted under the 1979 Ordinance was the same as provided for in Order 37 of the Code of Civil Procedure, 1908. It did not contain any special provision with regard to the institution of suits to be filed by the banks/financial institutions. This aspect was thus governed by the normal rules reserved for institution of cases on behalf of the companies and body corporate. With the introduction of Islamic banking, another special law (Banking Tribunals Ordinance, 1984) was promulgated for adjudication of suits filed by the banks/financial institutions based on mark up transactions. Section 6 thereof for the first time made three categories of officers (branch manager, Assistant Vice President and Assistant Manager) competent to file the suits in addition to any other officer authorized by the Board of Directors. The said provision reads as under:

6. Procedure of Banking Tribunal. (1) Where a customer commits default in fulfilling any obligation to a banking company, the banking company may file against such customer with the Banking Tribunal a plaint which shall be verified on oath by the Branch Manager or an officer of the rank of Assistant Vice President or Assistant Manager or such other officer as the Board of Directors of the banking company may authorise in this behalf.

The two laws continued to operate side by side until the legislature introduced the Banking Companies (Recovery of Loans, Advances, Credits & Finances) Act, 1997 which created a single banking court to adjudicate upon suits pertaining to interest and mark up based finance facilities. The 1997 Act curtailed the category of designated officers of a financial institution by authorizing only the branch manager to file the suits. In addition thereto, it provided that any other officer could also file the suit if he/she was duly authorized to do so by the Board of Directors. The relevant provision is reproduced here under:

9. Procedure of Banking Courts.—(I) Where a borrower or a customer of a banking company commits a default in fulfilling any obligation with regard to any loan or finance the banking company or, as the case may be, the borrower or customer, may institute a suit in the Banking Court by presenting a plaint duly Supported by a statement, of account shall be verified on oath in the case of a banking company by the Branch Manager or such other officer as the Board of Director of a banking company may authorize in this behalf.

6. The Ordinance was promulgated on 30.08.2001 and made significant changes in the 1997 Act, the scope whereof is not the subject matter of this judgment. Suffice it to state that section 9 of the Ordinance was once again modified by empowering three categories of persons to file suits on behalf of the financial institutions (a) the branch manager (b) an officer authorized by a power of attorney and (c) an officer who is otherwise authorized by a financial institution. Section 9 (1) reads as under:

9. Procedure of Banking Courts.
(1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise.

It can, therefore, be seen that apart from the 1979 Ordinance, all the subsequent banking laws provided for specific officers of a financial institution including the branch manager who could validly institute the suits by virtue of their designation. The departure that section 9 of the Ordinance made from the previous laws was to make eligible an officer holding a power of attorney to file the suit. The reason why this was done shall be adverted to in the later part of this judgment.

Further information regarding authorization of officers to file suits for financial institutions can be solicited from AUJ LAWYERS. Feel free to contact us in case you need any clarification and/or require legal assistance regarding similar matters.