P L D 2026 Lahore 69

 P L D 2026 Lahore 69

Before Tariq Saleem Sheikh, J

SAFEER HUSSAIN---Petitioner

Versus

CAPITAL CITY POLICE OFFICER, LAHORE and 4 others---

Respondents

Writ Petition No. 48137 of 2024, decided on 25th February, 2025.

Financial Institutions (Recovery of Finances) Ordinance (XLVI of

2001)---

----Ss. 2(a), 4 & 20(4)---Microfinance Institutions Ordinance (LV of 2001),

S. 2(ia)---Penal Code (XLV of 1860), S. 489-F---Constitution of Pakistan,

Art. 199---Constitutional petition---Quashing of FIR---Dishonoring of

cheque---Repayment of loan---Financial institution and Microfinance

institution---Distinction---Petitioner/accused sought quashing of FIR

registered on dishonouring of cheque issued for repayment of loan---

Validity---Scope of Financial Institutions (Recovery of Finances)

Ordinance, 2001 is fundamentally different from that of Microfinance

Institution Ordinance, 2001---Provisions of Microfinance Institution

Ordinance, 2001 are sector-specific, focused exclusively on

microfinance institutions serving underprivileged and

microenterprises segments---Provisions of Financial Institutions

(Recovery of Finances) Ordinance, 2001 are broad in coverage and

apply to wide range of financial institutions falling within statutory

definition of a financial institution under S. 2(a) of Financial

Institutions (Recovery of Finances) Ordinance, 2001---Nature of

respondent/complainant s business activities squarely fell within the

ambit of the term financial institution under S. 2(a)(i) of Financial

Institutions (Recovery of Finances) Ordinance, 2001---Any obligations

arising from financial accommodations extended by

respondent/complainant fell within the jurisdiction of Banking Court

under Financial Institutions (Recovery of Finances) Ordinance, 2001---

First Information Report registered by respondent/complainant under

S. 489-F, P.P.C. stated that petitioner/ accused obtained a loan from it

and gave cheque in question for its repayment which was dishonoured

on presentation---Parties acknowledged that petitioner/accused was

covered under the definition of customer and the cheque was given

for the repayment of finance and fulfilment of an obligation as defined

in S. 2 of Financial Institutions (Recovery of Finances) Ordinance,

2001---Respondent/ complainant was a financial institution within the

meaning of S. 2(a) of Financial Institutions (Recovery of Finances)

Ordinance, 2001 and cheque had been issued for the repayment of finance, the alleged offence fell exclusively under S. 20(4) of Financial

Institutions (Recovery of Finances) Ordinance, 2001 and the provision

of S. 489-F, P.P.C. did not apply---Banking Court had exclusive

jurisdiction over such matters under S. 7 of Financial Institutions

(Recovery of Finances) Ordinance, 2001---Any prosecution against

petitioner/accused had to be initiated through a complaint before

Banking Court as prescribed under Financial Institutions (Recovery of

Finances) Ordinance, 2001---High Court in exercise of Constitution

jurisdiction quashed the FIR registered against petitioner/accused---

High Court clarified that respondent/complainant was not precluded

from filing a complaint under S. 7 of Financial Institutions (Recovery

of Finances) Ordinance, 2001 before Banking Court for prosecution

under S. 20(4) of Financial Institutions (Recovery of Finances)

Ordinance, 2001---Constitutional petition was allowed, in

circumstances.

Ch. Sultan Mahmood, Advocate, assisted by Samran Mushtaq

Chaudhry and Muhammad Sohaib Mazhar for Petitioner.

Sittar Sahil, Assistant Advocate General for Respondents Nos.1 to 3.

Ms. Nosheen Ambar Bukhari and Syeda Zunaira Gillani for

Respondent No.4.

Date of hearing: 25th September, 2024.

JUDGMENT

TARIQ SALEEM SHEIKH, J.---Finja Lending Services Limited (FLSL)

is a public company operating as a Non-Banking Finance Company

(NBFC). It has lodged FIR No.1127/2024 dated 13.7.2024 under section

489-F, P.P.C. at Police Station Race Course, Lahore, against the

Petitioner through Junaid Hussain Bukhari, their authorized attorney,

for the dishonour of a cheque which he had allegedly given it to

discharge his financial obligation. The Petitioner seeks quashing of

that FIR through this petition under Article 199 of the Constitution of

the Islamic Republic of Pakistan, 1973, on the ground that it is without

jurisdiction. He contends that FLSL is a financial institution within the

meaning of section 2(a) of the Financial Institutions (Recovery of

Finances) Ordinance 2001 (FIO). If it seeks to prosecute any of its

customers for dishonestly issuing a bad cheque, it should file a

complaint with the Banking Court under section 7 of the FIO. An FIR

under section 154, Cr.P.C. is not competent.

2. NBFCs play a critical role in the financial ecosystem of Pakistan

through the following forms of business: (i) Investment Finance

Services (IFS), (ii) Leasing, (iii) Housing Finance Services, (iv) Venture

Capital Investment, (v) Discounting Services, (vi) Investment Advisory Services, (vii) Asset Management Services, and (viii) any other form of

business that the Federal Government may specify from time to time

by notification in the official Gazette.

1

3. According to Rule 2(1)(xxviii) of the Non-Banking Finance

Companies (Establishment and Regulation) Rules 2003 (the 2003 Rules

), IFS means the business of providing finance on conventional or

Islamic basis.

4. Microfinance is one of the activities under the IFS. The Non-

Banking Finance Companies and Notified Entities Regulations 2008

(the 2008 Regulations ) define it as the finance provided to a poor

person or microenterprise. A poor person is an individual with a

meager means of subsistence and whose total business income,

excluding expenses during a year, is less than or equal to Rs.1,200,000/-

or such other minimum limit as may be notified from time to time.

2

On the other hand, microenterprise means projects or businesses in

trading, manufacturing, services, or agriculture that lead to livelihood

improvement and income generation. These projects or businesses are

undertaken by micro-entrepreneurs who are either self-employed or

employ few individuals not exceeding 10 (excluding seasonal labour).

3

5. The microfinance sector comprises Non-Banking Microfinance

Companies (NBMFC) and Microfinance Banks (MFBs). Generally,

NBMFCs are registered as not-for-profit entities under section 42 of the

Companies Act 2017 and hold an IFS licence under the 2008

Regulations. They are regulated by the Securities and Exchange

Commission of Pakistan (SECP) and governed by Part VIII-A of the

repealed Companies Ordinance 1984,

4 the 2003 Rules, and the 2008

Regulations. In contrast, MFBs are deposit-taking institutions regulated

by SBP under the Microfinance Institutions Ordinance, 2001 (MIO).

MFBs are full-fledged banks providing microcredit, savings, and other

banking services like remittances. MFBs are subject to prudential

regulations, including capital adequacy and risk management

standards set by the State Bank of Pakistan (SBP), similar to

conventional banks but adopted in the microfinance sector.

6. In 2002, NBFCs were transferred to SECP s regulatory domain

pursuant to amendments to the Banking Companies Ordinance of 1962

and the Companies Ordinance of 1984. On 01.12.2002, SECP assumed

the regulatory role of investment finance companies, leasing

companies, discount houses, and housing finance companies from the

SBP. This transfer consolidated the regulation of the non-bank

financial sector under the SECP, except for development finance

institutions (DFIs), which remain under SBP s jurisdiction.

5 In 2015, after the approval of the Federal Government, SECP introduced

amendments to the 2003 Rules vide SRO 1002/2015 dated October 15,

2015, requiring the un-regulated microfinance lenders to obtain an IFS

licence for microfinance, thereby formalizing their regulatory

oversight and expanding financial inclusion.

7. The SECP has licensed FLSL to carry out Investment Finance

Services as an NBFC. FLSL s Memorandum of Association also states

that the company s principle business falls under IFS by providing

financial products and services to the salaried, unbanked,

underbanked, and millennial customer systems in the country,

meeting the financial needs of SMEs, their employees, suppliers, and

vendors, digitally. Further, FLSL may engage in all the lawful

businesses permitted to a company licensed to undertake Investment

Finances Services and shall be authorized to take all necessary steps

and actions in connection therewith and ancillary thereto. In this case,

the first question that requires determination is whether FLSL

qualifies as a microfinance institution under the MIO instead of a

financial institution under the FIO. If FLSL falls within the MIO

framework, the FIO will not apply, and proceedings for dishonoured

cheques will be governed by the MIO s scheme instead.

8. The MIO was promulgated to promote the establishment of

microfinance institutions for providing organizational, financial, and

infrastructural support to poor persons, particularly poor women, for

mitigating poverty and promoting social welfare and economic justice

through community building and social mobilization. Section 2(i) of

the MIO defines a microfinance institution as one that provides

microcredit and allied services to poor persons through sources other

than public savings and deposits. Section 2(k) further defines a poor

person as an individual whose annual income does not exceed a

prescribed threshold. SBP licensing is mandatory under the MIO.

9. As discussed, FLSL is licensed by SECP as an NBFC engaged in

Investment Finance Services (IFS). It does not exclusively serve poor

persons under the MIO, nor operates as a deposit-taking Microfinance

Bank (MFB) under section 2(ia) of the MIO. Since FLSL provides a

broader range of financial products beyond microfinance, it does not

meet the statutory criteria of a microfinance institution under the

MIO. Accordingly, its classification must be considered under the FIO.

10. The scope of the FIO is fundamentally different from that of the

MIO. While the MIO is a sector-specific law focused exclusively on

microfinance institutions serving underprivileged and

microenterprises segments, the FIO is broad in its coverage and

applies to a wide range of financial institutions falling within the

statutory definition of a financial institution under section 2(a) of the FIO.

6 Section 4 of the FIO mandates that the provisions of the FIO shall

override other laws and have effect notwithstanding anything

inconsistent therewith contained in any other law for the time being in

force.

11. Section 5 of the FIO establishes Banking Courts, and section 7

confers civil and criminal jurisdiction on them. Section 9 outlines the

procedure for suits by a customer or a financial institution before the

Banking Court for default in fulfilling an obligation with regard to any

finance. Section 20 criminalizes various acts and omissions and

provides punishments therefor. Section 20(4) states that:

(4) Whoever dishonestly issues a cheque towards repayment 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.

Section 20(5) provides:

(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.

12. Section 7(1)(b) of the FIO stipulates that in the exercise of its

criminal jurisdiction, the Banking Court shall try offences punishable

under the FIO and shall, for this purpose, have the same powers as are

vested in the Court of Session under the Code of Criminal Procedure

1898. However, the Banking Court shall not take cognizance of any

offence except upon a complaint in writing made by a person

authorized in this behalf by the financial institution in respect of

which the offence was committed. Section 7(4) further reinforces that

no other court shall exercise jurisdiction over matters falling within

the Banking Court s domain.

13. Section 20(6) reiterates that all offences under this Ordinance

shall be triable by a Banking Court in accordance with section 7.

Furthermore, all offences, except for the willful default, shall be

bailable, non-cognizable, and compoundable.

14. Not every transaction between a financial institution and its

clients falls within the ambit of the FIO. They must be covered by the

statutory definitions of financial institution and customer as contained in sections 2(a) and 2(c), respectively, of the FIO. Furthermore, the

obligation, as defined in section 2(e), must arise specifically from a

transaction that qualifies as finance within the meaning of section

2(d). This principle applies in both civil and criminal cases.

15. Section 20(4) of the FIO only applies if the dishonoured cheque is

issued towards repayment of finance. If it was issued in connection

with a liability outside the scope of finance under the FIO such as a

commercial arrangement, service fee, or another form of contractual

obligation then the FIO does not apply, and the jurisdiction of the

Banking Court would not be attracted. In such circumstances, the case

would properly fall within the domain of general criminal law

(section 489-F, P.P.C.).

16. The nature of FLSL s business activities squarely falls within the

ambit of the term financial institution under clause (i) of section 2(a)

of the FIO. Accordingly, any obligations arising from financial

accommodations extended by FLSL fall within the jurisdiction of the

Banking Court under the FIO.

17. FLSL registered FIR No.1127/2024 dated 13.7.2024 under section

489-F, P.P.C. with the Police Station Race Course, Lahore, stating that

the Petitioner obtained a loan from it and gave Cheque No.70580350

for Rs.15,000,000/- for its repayment which was dishonoured on

presentation. Although the Petitioner denies that he committed any

default, the parties acknowledge that the Petitioner is covered under

the definition of customer and the cheque was given for the

repayment of finance and fulfilment of an obligation as defined in

section 2 of the FIO.

18. Since I have concluded that FLSL is a financial institution within

the meaning of section 2(a) of the FIO, and the parties admit that the

cheque was issued for the repayment of finance, the alleged offence

falls exclusively under section 20(4) of the FIO. Section 489-F, P.P.C.

does not apply. Under section 7 of the FIO, the Banking Court has

exclusive jurisdiction over such matters. Any prosecution against the

Petitioner must be initiated through a complaint before the Banking

Court as prescribed under the FIO.

19. Given the above, this petition is accepted, and the impugned FIR

is quashed. However, FLSL is not precluded from filing a complaint

under section 7 of the FIO before the Banking Court for prosecution

under section 20(4).

MH/S-30/L Petition allowed.