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Hailey College of Banking and Finance


Business Law
Submitted To:

Prof. Muhammad Alam

Submitted By:
Fatima Abdullah M16BBA010

Question No :1
Relationship between Banker and Customer and their rights and obligations
According to J.W. Gilbert, a banker is a dealer in capital, or more specifically, a dealer in
money. He is an intermediate party between the borrower and the lender, and he borrows
from one party and lends to another
a person to be known as a customer of the bank there must be either a current account or
any sort of deposit account like saving, term deposit, recurring deposit, a loan account or
some similar relation.
Banker-Customer Relationship
The relationship between banker and customer is mainly that of a debtor and creditor.
However, they also share other relationships.
Some of the important relationships they share are depicted below.
The banker-customer relationship is that of a:
1. Debtor and Creditor,
2. Pledger and Pledgee,
3. Licensor and Licensee,
4. Bailor and Bailee,
5. Hypothecator and Hypothecatee,
6. Trustee and Beneficiary,
7. Agent and Principal,
8. Advisor and Client, and
9. Other miscellaneous relationships.
1. Relationship of Debtor and Creditor
When a customer opens an account with a bank and if the account has a credit balance, then
the relationship is that of debtor (banker / bank) and creditor (customer).
In case of savings / fixed deposit / current account (with credit balance), the banker is the
debtor, and the customer is the creditor. This is because the banker owes money to the
customer. The customer has the right to demand back his money whenever he wants it from
the banker, and the banker must repay the balance to the customer.

In case of loan / advance accounts, banker is the creditor, and the customer is the debtor
because the customer owes money to the banker. The banker can demand the repayment of
loan / advance on the due date, and the customer must repay the debt.
A customer remains a creditor until there is credit balance in his account with the banker. A
customer (creditor) does not get any charge over the assets of the banker (debtor). The
customer's status is that of an unsecured creditor of the banker.

The debtor-creditor relationship of banker and customer differs from other commercial debts
in the following ways:
1. The creditor (the customer) must demand payment. On his own, the debtor (banker)
will not repay the debt. However, in case of fixed deposits, the bank must inform a
customer about maturity.
2. The creditor must demand the payment at the right time and place. The depositor or
creditor must demand the payment at the branch of the bank, where he has opened
the account. However, today, some banks allow payment at all their branches and
ATM centres. The depositor must demand the payment at the right time (during the
working hours) and on the date of maturity in the case of fixed deposits. Today, banks
also allow pre-mature withdrawals.
3. The creditor must make the demand for payment in a proper manner. The demand
must be in form of cheques; withdrawal slips or pay order. Now-a-days, banks allow
e-banking, ATM, mobile-banking, etc.
2. Relationship of Pledger and Pledgee
The relationship between customer and banker can be that of Pledger and Pledgee. This
happens when customer pledges (promises) certain assets or security with the bank to get a
loan. In this case, the customer becomes the Pledger, and the bank becomes the Pledgee.
Under this agreement, the assets or security will remain with the bank until a customer repays
the loan.
3. Relationship of Licensor and Licensee
The relationship between banker and customer can be that of a Licensor and Licensee. This
happens when the banker gives a sale deposit locker to the customer. So, the banker will
become the Licensor, and the customer will become the Licensee.
4. Relationship of Bailor and Bailee
The relationship between banker and customer can be that of Bailor and Bailee.
1. Bailment is a contract for delivering goods by one party to another to be held in trust
for a specific period and returned when the purpose is ended.
2. Bailor is the party that delivers property to another.
3. Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the customer became
the bailor, and the bank became the bailee.
5. Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator and
Hypotheatee. This happens when the customer hypothecates (pledges) certain movable or
non-movable property or assets with the banker to get a loan. In this case, the customer
became the Hypothecator, and the Banker became the Hypothecatee.

6. Relationship of Trustee and Beneficiary
A trustee holds property for the beneficiary, and the profit earned from this property belongs
to the beneficiary. If the customer deposits securities or valuables with the banker for safe
custody, banker becomes a trustee of his customer. The customer is the beneficiary, so the
ownership remains with the customer.
7. Relationship of Agent and Principal
The banker acts as an agent of the customer (principal) by providing the following agency
 Buying and selling securities on his behalf,
 Collection of cheques, dividends, bills or promissory notes on his behalf, and
 Acting as a trustee, attorney, executor, correspondent or representative of a
Banker as an agent performs many other functions such as payment of insurance premium,
electricity and gas bills, handling tax problems, etc.
8. Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The advice can be given
officially or unofficially. While giving advice the banker must take maximum care and caution.
Here, the banker is an Advisor, and the customer is a Client.
9. Other Relationships
Other miscellaneous banker-customer relationships are as follows:
 Obligation to honour cheques: If there is enough balance in the account of the
customer, the banker must honour all his cheques. The cheques must be complete
and in proper order. They must be presented within six months from the date of issue.
However, the banker can refuse to honour the cheques only in certain cases.
 Secrecy of customer's account: When a customer opens an account in a bank, the
banker must not give information about the customer's account to others.
 Banker's right to claim incidental charges: A banker has a right to charge a
commission, interest or other charges for the various services given by him to the
customer. For e.g. an overdraft facility.
 Law of limitation on bank deposits: Under the law of limitation, generally, a customer
gives up the right to recover the amount due at a banker if he has not operated his
account since last 10 years.
Rights and Duties of Banker and Customer
It is very difficult to live without a bank account as it is required for many things. As more than
50% of Indians have bank accounts, it is very important for you to know the rights and duties
of both bankers and customers. we will discuss the rights and duties of bankers and

Rights and duties of bankers under Islamic banking and conventional banking
The rights and duties of bankers under Islamic banking and conventional banking are purely
different from one another. Opposite to the conventional banking, Islamic banking stands
with religious and moral norms in application to the banking business. Such concept is rather
deleted from the conventional banking system, where they do not believe in the sanctity of a
contract morally67, but only confined it to regulatory framework. As far as Islamic banking is
concerned, it is more specific and subjected to the types of the contracts. In comparison to
the conventional banking, it is more depended on the concept of loan only, whereby the
Islamic banking is much more versatile in matter of contracts
Rights of a Banker
1. Right to charge interest
Every bank in India has the right to charge interest on the loans and advances sanctioned to
customers. Interest is usually charged monthly, quarterly, semiannually or annually.
2. Right to levy commission and service charges
Along with interest, banks also have the right to levy a commission and service charges for
the services rendered. The service rendered by the bank might be SMS notification service,
retail banking and so on. Banks can also debit these charges from the customer's bank
3. Right of Lien
Another important right enjoyed by banks is the Right of Lien. Banks have the right to keep
goods and securities belonging to the debtor as a security, until the loan is repaid by the
debtor. Banks have only the right to maintain the security of the debtor and not to sell.
4. The Right of Set-off
The banker has the right to set off customer accounts. Banks can merge a couple of accounts
which are in the name of the customer and set off the debit balance in one account with the
credit balance in the other, provided the funds belong to the customer.
5. Right of Appropriation
Let us consider that a customer has taken many loans from the bank and he deposits some
money in the bank without any instructions. If that amount is not sufficient to discharge all
loans, the bank has the right to appropriate the amount deposited to any loan, even to a time-
barred debt. But the customer should be informed on the same.
6. Right to Close the Account
If the customer’s account is not properly maintained, banks have all the right to close the
account by sending a notice to the customer. Bankers have no right to close the account,
without sending a written notice.

Rights of a Customer

1. Right to fair treatment
According to this right, banks cannot discriminate between customers on the basis of gender,
age, religion, caste, and physical ability while providing services. This does not mean that
banks cannot offer schemes which are designed for a particular set of people. Banks have all
the right to offers differential rates of interest or products to customers.
2. Right of transparent, fair and honest dealing
The contract between the banks and customers should be easily understood by the common
man. It is the responsibility of the bank to make the customer understand interest rates, the
risk involved and all other terms and conditions. Banks should not hide anything from the
customer before the signing of the agreement. Even if there are any short comings, they
should be communicated to the customer. The language in the contract should be simple and
easily understood.
3. Right to suitability
You might have come across a lot of cases of mis-selling of financial products, especially life
insurance policies. Usually, customers are forced to buy the product which offers the highest
commission to an agent. As per this right, customers should be sold the product which is
suitable to them. So, banks should always keep customers needs in mind, before selling any
4. Right to privacy
As per this law, the personal information provided by the customers to the bank, must be
kept confidential. Bankers can disclose only such information, which is required by law or only
after customers have given permission. Banks are not allowed to provide your details to
telemarketing companies or for cross-selling.
5. Right to grievance redressal and compensation
Banks are responsible for all the products and services offered by them and customers have
the right to easy and simple grievance redressal systems in case the bank fails to adhere to
basic norms. Along with their own products, bankers are responsible for the products of third
parties like insurance companies and fund houses. If the customer complaint is not resolved
by the bank, customers can go to the banking ombudsman.
Obligations of Bankers
1. Obligation to Pay Cheques
It is a statutory obligation of the bank, having sufficient funds of the customer to pay cheques
duly drawn and presented. A bank will be forced to compensate the customer for any loss or
damage caused by its default. The bank’s liability for wrongful dishonor of cheque is of serious
nature. The bank will be forced to pay exemplary damage to the customer. However, bank
may refuse payment of a cheque for reasons such as
i. Insufficient funds in the account
ii. Cheque is not properly drawn
iii. Cheque is stale (presented after stipulated date)

iv. Cheque is crossed but presented for cash
v. Cheque is received after receipt of notice of death, insolvency or lunacy of the drawer
of the cheque.
So also, when instructions are received from the drawer to stop the payment of cheque or
when attachment / garnishee order is received from a competent authority, payment can be
refused. If the drawer’s signature differs, bank can refuse payment and also when the amount
of the cheque differs in words and figures.
2 Secrecy
It is one of the principal duties of the banker to maintain complete secrecy of the status of
customer’s account and failure to do so will make the bank to compensate the customer for
any damage or loss suffered. However, a bank is justified in making disclosure, under the due
process of law or under express or implied consent of the customer.
Disclosure in the bank’s interest is permitted. So also it is an accepted custom among the
bankers to disclose certain information to a fellow banker on written request. While disclosing
information to others, only bare facts should be revealed and not any comments and
conclusions on the matter. The disclosing bank should indicate to the other bank that in turn
it should maintain secrecy.
3. Banker ‘s Lien
Lien generally is the right of the creditor to retain possession of the goods and securities
owned by the debtor until the debt is repaid. It however, does not vest the right to sell the
goods. But the banker’s lien has a wider connotation. It is an implied pledge.
The bank has the right to sell the subject matter in possession in the ordinary course of
business as a banker, and adjust the unpaid debt. Lien may be a general or particular lien.
General lien empowers the bank to retain all movables in its possession but particular lien
gives the right to retain the goods or property connected with particular debt.
Banker’s general lien is not applicable to safe custody articles, documents / money deposited
for specific purpose and securities / valuables left through oversight.
4. Mandate
The account holder alone has the right to operate his account with the bank. No person other
than the account holder can order the bank to debit the account. But the account holder can
give mandate or a power of attorney to another person to operate his account.
A mandate is an authority given by the account holder in favour of a third person. This is
issued by an account holder with a direction to his banker authorizing third person to operate
the account. It is unstamped letter signed by the customer.
A letter of mandate is generally issued for a short period as a temporary measure. Mandate
letter should not be accepted from the limited companies. A mandate will automatically
lapse, on death, insanity, insolvency and bankruptcy of the account holder,

5. Power of Attorney
It is a document executed by the donor or principal in favour of donee or agent to act on
behalf of the former as per authority given in the document. The following points must be
taken into consideration by the banker while accepting power of attorney issued by the
There are two types of power of attorney.
1. Special Power, and
2. General Power.
While the special power of attorney is given for a specific purpose, the other one covers many
activities. Power to sign the cheque, stop payment, signing loan documents when given to
Power of Attorney holder, the donor is ultimately liable to pay the loan amount. It is a
stamped document. The original power of attorney should be perused and a copy should be
obtained and filed with the Bank. The donor can withdraw or cancel the Power of Attorney at
any time.
6. Circumstances Leading to Closure of Accounts
The relationship between the banker and the customer is established by mutual agreement
open and operate the account. This relationship may be terminated at anytime by either party
by closing the accounts. In fact, the banker-customer relationship imposes an implied
obligation on the banker not to close the account of the customer except in extraordinary
case supported by indisputable reasons.
In other words, the banker should carefully examine the issue before closing the customer’s
account and unless there are justifiable reasons, it should not close the accounts of the
A bank may take initiative to close the account of an undesirable customer after giving proper
notice for the following reasons.
a. Frequent return of cheque for insufficient balance.
b. Forgery/malpractice committed by the customer.
However, a customer may close the account at any time.
7. Loans and Advances
As already said, the Bank deposits are used for lending or investment or both. In addition,
bank handles purchase and sale of foreign currencies and also lends for import and export
trade. The commercial banks lend money by way of overdrafts, demand loans, cash credit, or
by way of purchase or discounting of bills of exchange or hundies, for the purpose of financing
trade, commerce, industrial or any other business activity.
Lending by the banks is mostly against security such as goods, book debts, land and buildings,
livestock, share, securities etc. When the advance is given against such security, it is termed
as a secured advance and in cases where the advance is not backed by any security, it is
classified as unsecured or clean advance.

Duties of customer
To exercise reasonable care in drawing cheque
In absence of express agreement to contrary, customer’s duty is limited to duty to refrain
from drafting a cheque in such a manner as to facilitate fraud or forgery. Customer’s duty is
to take care to prevent fraudulent alterations of cheques which might cause loss to banker,
thus the customers have to exercise due care in drawing cheques to prevent any fraud from
To disclose forgery
Customer has to disclose to the bank any forgery immediately upon his discovery of such
forgery (the Greenwood duty) to enable the bank to take a adequate precautions against
future loss. A customer owes no wider duty of care to the bank in the overall management
and operation of the bank account.
Strictly Follow Banking Hours
The customer must be aware of his bank’s business hours and shall not unnecessarily trouble
the bank staff to comply with his requests outside the business hours. This is because the
customers, upon their request, are provided with Debit Card and Internet Banking facility free
of cost, almost by all the banks. Hence with these, a customer can meet most of his financial
needs, even when his bank is closed.
Behave Ethically
The customer must behave decently and politely when he is inside a bank or when he
contacts his bank over phone or email. Especially when he contacts his bank over phone, he
must be very specific on his query and end his conversation within a few minutes, because
the bank staff at the other end has several constraints in prolonging the conversation
know the difference between the ‘Home Branch’ and other branches
The customer is expected to know the distinction between the ‘Home Branch’ and
other branches of the same bank. This is because certain functions can be carried out only at
the ‘Home Branch’ (e.g. issuance of a new cheque book or a Debit Card, account closure,
change of address etc.).

Question No : 2
What Happens When You Default on a Loan?
Sometimes things don’t work out as planned. You probably intend to pay off all of your
loans, but life can surprise you in a number of ways—a job change or health event can
quickly throw you off track. So, what happens in those worst-case-scenarios? Eventually,
you may “default” on your loans, and it’s important to know how that affects you, your
finances, and your credit.

The omission or failure to perform a legal or contractual duty especially the failure to pay a
debt when due”.
It becomes Willful Default when a person intentionally deliberately and voluntarily fails to
pay a debt when due. The term “willful default ” has not been defined in any other law
except the National Accountability Ordinance 1999 which has been given an overriding
effect, notwithstanding anything contain in any other law for the time being enforce,
according to section 3.

Procedure Of The Banking Court

plaint a statement in writing of grounds of complaint made to a court of law and asking for
redress of the grievance.
Section 9 of the financial Institution Ordinance 2001 specifies the procedure of the Banking
Courts. Assuming that a Financial Institution files a suit/plaint in the Banking Court for the
recovery of the outstanding loan/finance after the default of the customer, the plaint must
contain certain specified particulars, such as the total amount of the loan/finance, the
amount(s) paid back, the outstanding amount etc. the plaint must be signed by a duly
authorized person/officer/manager of the Bank having valid power of attorney from the
Financial Institution to sign the plaint

(B) Statement Of Accounts
The plaint must be supported and accompanied by a “Statement of Account” which should
be duly certified as per Section 3 of the Bankers Books, Evidence Act. Without the valid
statement of account, a suit of the Financial Institution is liable to be dismissed. It is to be
noted that a legal presumption of correctness and truth lies with the duly verified statement
of account, however this presumption can be rebutted by the defendant by introducing
strong evidence against and be proving that the entries contained in the statement of the
account are incorrect. For example defendant can prove that the dates and amount of the
disbursement of loan/finance are incorrect. The defendant can also produce
receipts/documents that the amounts repaid are not reflected in the statement of the
The party sued in a civil lawsuit or the party charged with a crime in a criminal prosecution.
In some types of cases a defendant may be called a respondent.

(C) Special Law

The banking law under discussion is a special law; therefore, the provisions of this law will
prevail over any other law on the same point. However, where the banking law is silent on
any point the general law, may it be civil or criminal, will be applicable. Therefore the
procedure of the banking court being under special law is different from the procedure of the
normal civil courts which strictly follow the civil procedure code.

(D) Procedure of service of defendant:

Upon receiving the suit/plaint by the Baking Court if the court is satisfied that there are no
legal infirmities in the plaint/suit, the court shall order notices to be issued to the defendant(s)
by four modes of the service:–
(i) Notice through court bailiff/server
(ii) Notice through registered letter
(iii) Notice through courier service
(iv) Notice through proclamation in two newspapers one in English and one in Urdu.
The notice will be in the form of a show-case notice. It is different from the notice of a Civil
Court which simply informs the defendant that such and such case has been filed against you
and on the next date of hearing you should come in person or through lawyer to defend
yourself by filing firstly a written statement. In case of Banking Court, the notice is in the form
of a show-cause notice stating to defendant(s) as to why judgment and decree should not be
passed against you, presuming that the suit is correct because it is supported by a certified
statement of account.
A minor officer of a court serving primarily as a messenger or usher. A low-level court official
or sheriff's deputy whose duty is to preserve and protect orderly conduct in court proceedings

(E) Petition For Leave To Appear & Defend
The exhibiting of any action, real or personal, in writing; the party making his plaint is called
the plaintiff.
Upon the receipt of first notice through any of the four modes of service, the defendant(s)
must file within Thirty days as provided in Section 10 of the Financial Institution Ordinance
2001 a petition of leave to appear and defend the suit (PLA). If the PLA is not filed within thirty
days from the date of first service, the suit shall be decreed forthwith summarily in favor of
the plaintiff legally presuming that all the contents of the plaint are true and correct (ex party
decree). However, in case of genuine delay having plausible reasons, the court may condone
the delay in filing of the PLA. Time to be computed from the date of first service:
Section 10 of the Financial Institution Ordinance 2001 provides for the necessary which must
be included in a PLA failing which the PLA may be rejected. The necessary ingredients are for
example the amount of loan/finance availed, the dates of disbursement(s), the amount(s)
paid back, and the total amount which in view of the defendant(s) is due to outstanding (if
any). The PLA must raise “Substantial questions of law and /or fact”.
Question of Fact
In law, a question of fact (also known as a point of fact) is a question which must be answered
by reference to facts and evidence, and inferences arising from those facts. The answer to a
question of fact (a "finding of fact") is usually dependent on circumstances or factual
Questions of Law
a question of law (also known as a point of law) is a question which must be answered by
applying relevant legal principles, by an interpretation of the law.
To illustrate the difference:
Question of fact: Did Mr. and Mrs. Jones leave their 10-year-old child home alone with their
baby for 4 days?
Question of law: Does leaving a baby with a 10-year old child for 4 days fit the legal definition
of child neglect?

Dishonouring Of A Cheque
There are various laws which deal with the dishonouring of cheque under Sect. 20(4) of the
Financial Institution (Recovery of Finance) Ordinance 2001, it is a pre-requisite of the bounced
cheque that it must have been given towards repayment of finance etc. and the punishment
for this offence is imprisonment which may extend to one year or with fine or both and this
offence is bailable. If the cheque is given for payment of any installment of loan/finance and
is dishonoured no F.I.R. can be registered. The matter is exclusively within the jurisdiction of
the Banking Court. However, if the cheque is given and taken between private persons
without involving a Financial Institution as a personal deal and the cheque is dishonoured, the
remedy lies under Section 489(f) of the Pakistan Penal Code and in this case the punishment
is upto three years and the offence is cognizable and non-bailable. The aggrieved party will

be entitled to register F.I.R. against the person who issued the cheque. In this category of
private persons’ dealing resulting in dishonouring of a cheque, a remedy also lies in filing a
complaint/suit under Order 37 Rules 1 & 2 of the C.P.C. before the District Judge who under
the provisions of the Negotiable Instruments Act will try the suit by issuing a ten days show-
cause notice as to why decree should not be passed against the defendant i.e. the person who
issued the cheque.

Nature of Securities
The securities obtained by the Banks before the disbursement of the loans/finances are of
the following kind.
1. Landed Property & structure thereon including houses, offices, plots etc. outside the
project by way of mortgage whether equitable, registered, deposit of title document or of
another kind.
2. The project land, structure, machinery i.e. the factory by way of mortgage whether
registered equitable, deposit of title document etc.
3. Pledging of shares of the directors/sponsors of the borrowing Co.
4. Hypothecation and/or floating charge over the goods/materials in its raw form,
manufactured or semi-manufactured.
5. Personal Guarantees/Undertakings of the Sponsors/Directors involving and specifically
stating their personal properties such as vehicles, cars, houses, lands, plots etc. on which
no charge is created in favour of the Bank.

Difficulties in Realization of the “Due Amounts”

1. Over-evaluation of the Securities at the time of granting loan (s)/finance (s).
2. Depreciation of the securities such as the machinery of a closed mill/factory for a long
3. Finding of a serious bidder/buyer who are hesitant because of possible future litigation
and stay order(s) on the purchased or purchasable property/securities.
4. Possibility of defective title of the mortgagor/borrower(s) at the end of the day.

After the passing of the decree by a Banking Court, may it be a single judge of the High Court
acting as a Banking Court against the defendant, the appeal must be filed by the Judgment
Debtor in the High Court within 30 days of the passing of the Decree. This appeal shall be
heard by a Division Bench of the High Court consisting of two judges and shall be called a
Regular First Appeal (RFA). Against a decision of the Division Bench of the High Court, appeal
lies to the Supreme Court. However, there is still another law regarding Banking Crimes which
deals with the employees/officers of the banks, the customers and the obetors, who have

defrauded the bank. The seat of the Banking Crimes Court is at Lahore and its territorial
jurisdiction is the whole of Punjab.

Check List of Loan Documents

Borrower’s/Customer’s Documents:

1. In case of a partnership being a borrower, the bank should obtain a

certified/attested copy of a duly executed legal Partnership Deed, preferably a
registered deed on a stamp paper.
2. In case of a sole proprietorship, an affidavit and undertaking to the effect that it is a
sole proprietorship solely owned by Mr. “x”.
3. In case of a company certified copies of the memorandum and articles of association
duly signed and “sealed” by the company secretary and/or the Chairman of the Board
of Directors.
4. A resolution of the Board of Directors to avail credit facility from the Bank. The
resolution must be duly signed and “sealed” by the Company Secretary and/or the
Chairman of the Board.
5. A Resolution of the Board of Directors delegating the special powers whether directly
or through a General Power of Attorney given to the Chief Executive of the Bank in
favour of Bank manager and/or any other officer(s) duly and specifically authorizing
him to ‘institute” the suit and give/sign vakalatnama in favour of the
Counsel/Advocate and sign the plaint/petition for leave to defend/written statement
and all that is necessary for the “case”, which may be against the Bank or in favour of
the Bank.
6. Attested/certified copy of the latest Form XXIX to be obtained from the SECP and to
be provided to the lending Bank.
7. Undertaking of the directors/sponsors/shareholders/partners/proprietor/third party
guarantors/sureties/indemnifiers/which, guarantees/ undertakings must contain a
list/schedule of the personal movable and immovable properties of the aforesaid
persons even properties may not be under lien or charge of the lending Bank
8. In case of Company, latest certified copy of the balance sheet to be obtained from the
9. In case of a Company, a certified copy of the certificate of Incorporation and the
Certificate of the Commencement of Business issued by the SECP.
10.Three specimen signatures of the authorized persons(s) dealing on behalf of the
borrower along with an authority letter of the borrower duly signed by authorized
person, sealed (stamped in case of partnership/sole proprietorship) accompanied
with copies of N.I.Cs & passports (if available/possible).
11.Reference from the previous bankers if so desired.
12.Clearance from the State Bank Defaulters list.
13.All the documents of the borrowing company should contain embossed seal.

Part Two:
Finance Documents:
1. Loan application with a feasibility study.

2. Sanction letter

3. Loan Agreement(s)

4. Irrevocable General Power of Attorney in favour of the Bank.

5. UpToDate and complete statement of account from the date of first disbursement and/
Or from the date of opening the account (as the case may be) containing all the debit

And credit entries with the final balance duly certified/verified in accordance with the
provisions of the Bankers Books Evidence Act which certificate should be given at the foot
of the statement and should be signed by two authorized officers.

Part Three:

1. Duly verified title document of the property accompanied with the certificate of a lawyer.
2. Registered Mortgage Deed accompanied with the certificate of a lawyer.
3. Hypothecation agreement in the case of stock etc. or other moveable assets/goods
present and future assets.

4. Pledging of shares agreement.

5. Pledging of any bonds, investment certificates, PTCs, TFCs and/or other such financial

6. Floating Charge Agreement.

7. Continuation/subsisting charge agreement.
8. Agreement of General lien of the Bank on any other accounts and securities with the

9. Non-Encumbrance certificate (NEC)

10. Registration of the creation of charge on all moveable and immovable properties under
Companies Ordinance 1984 with the SECP.

11. Equitable Mortgage Deed.

Note: Mere mutation/Intiqal in the Revenue Record is not per se a title document unless it is
a mutation of inheritance.

The main concern of the Financial Institutions is the recovery of their outstanding dues. The
law under discussion has enough and effective provisions for the recovery of the dues. If there
are any bad debts that is due to their own doings, as the Financial Institutions have
unscrupulously disbursed finances to undesirable and incompetent people without obtaining
sufficient securities.

State Bank sets loan recovery parameters

The banks are facing default in the consumer loans and are trying to get support from
the State Bank for recovery. However, the poor record of excesses by their 'recovery
teams' which are often accused of harsh behaviour has forced the SBP to streamline the
loan recovery process through a set of detail instructions.
State Bank of Pakistan in its endeavor to further streamline the procedure of
collection/recovery of debt has formulated guidelines on debt collection to set the minimum
standards to be observed by Banks/DFIs to address the grievances of customers/borrowers.
These guidelines are applicable to various types of consumer financing facilities including
Credit Cards, Housing Loans, Auto and Personal Loans etc. In case any bank/DFI has already
developed its debt collection code of conduct, the same shall appropriately be modified in
line with these guidelines.

1. The Banks/DFIs shall follow the following minimum guidelines in their debt collection
efforts: -
i) Before proceeding for debt collection/recovery from their customers / borrowers, the
bank/DFI shall ensure to provide him/her all information relating to payments fallen due. A
minimum of 14 days’ notice will be served to the customer / borrower through letter/SMS
advising him/her to make overdue payment, before a visit to his/her residence / business
place is undertaken in a lawful manner to negotiate recovery of the outstanding amounts.
Advance notice will be required to the customer when bank/DFI staff picks up the payment
and if it is done on customer’s request then it should be properly recorded.
ii) Banks/ DFIs in their collection/recovery efforts shall ensure that (a) the customers /
borrowers are not contacted at an inconvenient time (b) proper disclosure of identity; name
of the bank and the purpose of call is provided (c) only lawful and acceptable business
language and professional attitude is adopted in establishing such contact.
iii) Banks/ DFIs shall also ensure that (a) collection calls are properly recorded (b) customers
/ borrowers are contacted at the given address/phone numbers and in case they cannot be
contacted, at alternate address/phone number obtained through collection efforts (c) “Visit
Reports” shall be kept on record in the form of hard copy or on electronic collection systems
for at least six months (d) collection staff shall not harass their family members. However,
necessary information could be obtained from family/friends/third party of the borrower if
he/she is not in contact for 30 days after the first missed payment.

iv) Banks/DFIs shall give 14 days written notice before repossessing the leased vehicle on
breach of an agreement / default on repayment by the customers / borrowers, banks/DFIs
and the recovery agencies employed by the bank/DFI are advised to allow the
customer/borrower to take possession of their valuables/goods out of the vehicle.
v) Banks / DFIs are advised to ensure that (a) their collection/recovery staff do not transfer or
misuse any personal data of customers / borrowers without their prior approval (b) any
information of customer/borrower provided to the collecting staff are properly documented.
vi) The banks/DFIs shall ensure that the collection/recovery agencies employed by them must
be enrolled with Pakistan Banks’ Association (PBA) once the arrangements in this regard are
in place. In this regard, PBA is being advised to develop a criteria keeping in view the
“Guidelines on Outsourcing Arrangements” issued by State Bank of Pakistan.

2. In order to effectively control the functions of collection/recovery and the human

resources engaged in this process, banks/DFIs would ensure the followings:
i) Frame a code of lawful conduct for recovery staff.
ii)Introduce a well defined mechanism for addressing complaints against the
collection/recovery staff.
iii) Undertake a periodical review of their recovery procedures / mechanism for improvement
in line with law, market practice/development.
iv) Engage suitably qualified staff in collection/recovery and provide them necessary training.
v) Regularly monitor the activities of collection/ recovery staff / agencies.

3. These guidelines shall be in addition to, and not in derogation of the relevant laws /
i).The State Bank of Pakistan during the course of inspection will check compliance of above
guidelines. Strict action shall be taken against the bank/DFI for non-compliance of above