Experts call for check on banks after court allows auction powers

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–Hamid Khan says LHC decision will empower banks against fraudulent borrowers who try to cheat the system

–Khalid Ranjha calls for transparency in banking system, says decision could lead to abuse of power

LAHORE: Legal experts have welcomed the Lahore High Court’s (LHC) ruling allowing banks to sell mortgaged property in case of default, but have warned against the abuse of power by the financial institutions.

On Tuesday, the court had ruled that the banks could auction mortgaged property without obtaining the court decree. However, the bench noted that it was mandatory that more than one bidder should participate in such an auction.

Speaking to Pakistan Today, legal expert Hamid Khan said that the banks can sell mortgaged property without the involvement of courts in the matter as there is a provision for this in the law.

He said that while some people had challenged the provision on the basis of it being allegedly unconstitutional, the judgement indeed strengthens the rule of law. He also said that it is important to empower banks for recovery of loaned sum and the high court’s judgement grants them that sense of empowerment. “Some people take loans from banks and think they can somehow avoid paying it back to the bank. This decision would inform the people that whatever they do they have to return the loaned sum,” he added.

While he defended the judgement, he said that there is another issue with the banks that needs the attention of the authorities concerned. He said that sometimes the statements prepared by the banks are exaggerated, which further burdens the borrower.

Khalid Ranjha, another legal expert, offered a different opinion.

He said that it was common practice for the courts to be involved in the mortgaging of properties but now efforts are being made to empower banks in the same and this would definitely lead to abuse of power. “When giving out loans, banks often make you sign on dotted lines without making you read the terms and conditions. Moreover, the borrower never has any access to the bank’s records. This makes the borrower helpless,” he said.

“This is similar to the concept of a man owing land without formal documents in his possession,” he added.

On Tuesday, a five-member bench headed by LHC Chief Justice Mamoon Rashid Sheikh announced the verdict which had been reserved after hearing the arguments of all the parties on November 8, 2019.

The petitioners, Muhammad Shoaib Arshad and others, through their petitions had challenged reintroduction of Section 15 of Financial Institutions (Recovery of Finances) Ordinance 2001, which empowered banks to sell mortgaged property in case of default in payment by a customer.

The LHC CJ had observed that an early decision over the issue would enable the banking sector to extend loan facilities and easing the mortgage process.

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