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Official Citation: 2022 LHC 2455
Court / Jurisdiction: Lahore High Court
Year of Decision: 2022
Decision Date: 2022-04-01
Parties: NRSP Micro Finance Bank Ltd vs Ex-officio Justice of Peace, etc
This judicial decision was delivered by the Lahore High Court on 2022-04-01. The matter involves proceedings between NRSP Micro Finance Bank Ltd and Ex-officio Justice of Peace, etc, officially reported as 2022 LHC 2455. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
Case cited as 2022LHC2455
Court Name: Lahore High Court Judge(s): Muhammad Shan Gul Title: NRSP Micro Finance Bank Ltd vs Ex-officio Justice of Peace, etc Case No.: W.P. No.9737 of 2018 Date of Judgment:2022-04-01 Reported As: 2022 LHC 2455 Result: Peition allowed
JUDGMENT
JUDGMENT Can a cheque be drawn on any other institution but for a bank? Is the offence contemplated by Section 489-F PPC only applicable in respect of cheques issued by banks? Is Section 489-F PPC applicable in respect of other negotiable instruments? What is the pith and substance of Section 489-F PPC or for that matter what is the dominant object of the said provision? Does Section 489-F PPC qualify as a law that only relates to banking companies and financial institutions or whether it is a law promulgated to govern dealings between private individuals? Whether the offence contemplated by Section 20(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 is completely different than the offence envisaged by Section 489-F PPC? Whether the have-nots have a carte blanche to issue cheques that are dishonoured on their presentation? This judgment seeks to answer the questions raised above. MUHAMMAD SHAN GUL, J. Through this judgment the titled constitutional petition is sought to be decided. FACTS: 2. National Rural Support Programme (NRSP) Microfinance Bank/petitioner is a Microfinance bank operating in terms of Section 2(i)(a) of Microfinance Institutions Ordinance, 2001 ("MIO, 2001") and is providing microfinance services in accordance with Section 2(j) and Section 6 of Microfinance Institutions Ordinance, 2001. Such Institutions/banks have been established with the specific purpose i.e."for providing organizational, financial and infrastructural support to poor persons.... " as provided in the preamble of Microfinance Institutions Ordinance, 2001. 3. The petitioner statedly extended various loans to respondents No.3 to 12, the repayment of which was due on 31.03.2018 , however , none of the said facilities were adjusted/re-paid within time and till the final date of repayment. Upon the petitioner 's insistence various cheques with the encashment date of 15.04.2018 were issued
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by the said respondents No.3 to 12. Each of the cheques issued by each of the respondents was for the specific amount of loan outstanding against them. All the cheques were drawn upon the accounts maintained by the said respondents No.3 to 12 with the petitioner Bank. The cheques, upon presentation for encashment, on 24.04.2018, were dishonoured on account of lack of funds in the accounts upon which those were drawn. 4. The petitioner , on 27.04.2018, approached a Justice of Peace/Additional Sessions Judge, Jatoi/respondent No.1, seeking a direction under Section 22-A/22-B of the Code of Criminal Procedure, 1898 ("Cr.P.C.") for lodging of FIR under Section 489-F of Pakistan Penal Code, 1860 ("PPC"). Respondent No.1 vide order dated 23.05.2018, which is under challenge here, dismissed the application of the petitioner for the following reasons: (i) As per Section 3(2) of MIO, 2001, the petitioner does not fall within the meaning of a Bank and hence, cannot dishonour a Cheque and therefore, no cognizable offence is made out. (ii) The petitioner is itself both a comp lainant and the one which has dishonoured the cheque and the said phenomenon "gives reminiscence of inquisitorial system which is against the spirit of adversarial system". PETITIONER'S CONTENTIONS: 5. The counsel for the petitioner contends that the petitioner operates as a Bank under the regulatory control of State Bank of Pakistan ("SBP") and as per Section 6 of the Microfinance Institutions Ordinance, 2001, is authorized to open bank accounts and issue cheque books to customers, hence, the conclusion reached by respondent No.1 is erroneous. Further submits that dishonest issuance of cheques by respondents No.3 to 12 against their respective outstanding liabilities on account of paucity of funds in their respective accounts complete the ingredients of a cognizable offence envisaged by Section 489-F PPC, leaving no room for denial of recording of petitioner 's statement under Section 154 of Cr .P.C. 6. During the course of proceedings, attention of this Court was drawn by the counsel for the respondent to the fact that the petitioner is not a Schedu led Bank, having not been declared as such by the SBP under State Bank of Pakistan Act, 1956 ("the SBP Act, 1956"). It has also been argued that contents of the petitioner 's application under Section 22-A/22 B of Cr.P.C. show that the cheques under reference were only to be encashed in case of non-payment by respondents No.3 to 12 of their respective liabilities till 15.04.2018 and such statement by the petitioner itself reveals that the said cheques are "Guarantee Cheques". SUBMISSION OF AMICUS CURIAE: 7. M/s. Isaam Bin Haris, Haji Tariq Aziz Khokhar and Abuzar Salman Niazi, Advocates were appointed as Amicus Curiae to assist this Court on the questio ns: (a) Can Cheques issued by the petiti oner, a non-Scheduled Bank be termed as negotiable instruments and be a cause of initiation of proceedings under Section 489-F PPC? (b) Were the Cheques in question issued as a Guarantee and hence, are outside the ambit of Section 489-F PPC as held by the Hon'ble Supreme Court of Pakistan in "Mian Allah Ditta v. The State and others" (2013 SCMR 51) and "Mian Muhammad Akram v. The State and others" (2014 SCMR 1369 )? and (c) whether the law laid down in "Muhammad Mumtaz Akhtar v. Additional Sessions Judge, etc." (PLJ 2021 Lahore 98) and "NRSP Microfinance Bank Limited v. Additional Sessions Judge/Justice of Peace and 3 others" (PLJ 2021 Lahore 43) sufficiently answers the questions raised in this case and should be applied here? 8. Mr . Isaam Bin Harris, Advocate has stated as follows: (a) The word "Cheque" has not been defined in PPC and hence, resort has to be made to Negotiable Instruments Act, 1881, the following provisions of which define what instrument would constitute a Cheque, which in turn, could form the subject of application of Section 489-F of PPC: 6. "Cheque" . A "cheque" is a bill of exchange drawn on a specified banker and not expressed payable otherwise than on demand. 3 (b) "banker" means a person transacting the business of accepting, for the purpose of lending or investment, of or deposits of money from the public, repayable on demand otherwise withdrawable by cheque, draft, order, or otherwise, and includes any Post Office Savings Bank;. The learned Amicus Curiae proposes that since Sections 2(i)(a), 2(j) & 6 of the Microfinance Institutions Ordinance, 2001 sufficiently authorize the petitioner to open and operate bank accounts, accept deposits in such bank accounts and make payments against instruments drawn on such bank account s, it can be safely termed as a
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"banker" and cheques issued by the same, if dishonoured, can attract the provisions of Section 489-F , PPC. However , that the purpose and aim of establishment of the petitioner is limited to support persons with meagre means of subsistence and no criminal proceedings against such Customers (for whose alleviation the Petitioner was established) were intended by the Microfinance Institutions Ordinance, 2001. He refers to the Report ("Punishment on bouncing of Cheques") by Law & Justice Commission of Pakistan to assert that Section 489-F was intended to be used in case of dishonouring of Cheques in transactions between private individuals. The only mechanism available under law for criminally prosecuting an issuer of Cheque in favour of a Bank is available under the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("FIO, 2001") and since the FIO, 2001 is not applicable to the petitioner, as held in "Syed Itrat Hussain Rizvi v. Messrs Tameer Micro Finance Bank Limited through Attorney and another" (2018 CLD 116), no criminal prosecution can be initiated by the petitioner against respondents No.3 to 12 since such prosecution is neither contemplated in the Microfinance Institutions Ordinance, 2001 nor fulfills the purpose behind enactment of Section 489-F PPC. (b) Although a definite obligation to repay loan to the Petitioner existed at the time of issuance of the Cheques in question, yet as per the Petitioner's contention the said Cheques were issued to gain more time for the settlement of the said obligation it can be inferred that the same were issued as a "Guarantee", attracting the law laid down in "Mian Allah Ditta v. The State and others" (2013 SCMR 51) and excluding the possibility of application of Section 489-F PPC to the current case.. (c) That "Muhammad Mumtaz Akhtar v. Additional Sessions Judge, etc." (PLJ 2021 Lahore 98) and "NRSP Microfinance Bank Limited v. Additional Sessions Judge/Justice of Peace and 3 others" (PLJ 2021 Lahore 43) though hold that Section 3(2) of MIO, 2001 excludes the application of FIO, 2001 and hence, Petitioner cannot initiate proceedings under FIO, 2001 for dishonouring of cheque issued in its favour by its Customers are silent and offer no debate or judicial conclusion on the issue whether exclusion contained in Section 3(2) disallows proceedings under Section 489-F of PPC? 9. What Isaam Bin Harris says is indeed quite attractive and inspiring and, therefore, definitely worth consideration. The argument that the exclusion contem plated by Section 3(2) takes in its sweep Section 489-F PPC is quite ingenious and has provided immense food for thought! 10. Mr. Abuzar Salman Niazi, Advocate made the following submissions in response to queries raised by this Court:- (a) Relying upon the afore stated provisions of Negotiable Instruments Act, 1881 and MIO, 2001, he submits that irrespective of the fact that the Petitioner is not a Scheduled Bank since the petitioner conducts the business of banking and neither the Microfinance Institutions Ordinance, 2001 or Negotiable Instruments Act, 1881 nor Section 489-F draw any distinction between the issuance of cheque by a scheduled or a non-scheduled bank for the purpose of validity of that cheque as a Negotiable Instrument and, therefore, a cheque issued by the Petitioner would be deemed as a cheque under Section 489-F of the PPC. He, however, relies upon "Saeed Ghani v. Dr. Shahid Masood and 3 others" (2022 YLR Note 3) and "Sui Northern Gas Pipeline Limited, (SNGPL) through General Manger v. Director (Legal), President Secretariat (Public), Aiwan e-Sadar Islamabad and 2 others" (PLD 2018 Islamabad 51) to submit that there seems no reason for exclusion of application of general law i.e. Section 489-F PPC when the special law i.e. the Microfinance Institutions Ordinance, 2001 specifically and expressly does not exclude such application. Moreso because Section 3(1) of the Microfinance Institutions Ordinance, 2001 states that "the provisions of this Ordinance shall be in addition to, and, save as hereinafter provided, not in derogation of, any other law for the time being in force." Further states that since the purpose of Section 489-F has never been to recover outstanding loans but rather criminalize dishonest issuance of cheques, there appears no foundation for the inference that only because MIO, 2001 does not contemplate any criminal prosecution against its defaulting custome rs, Section 489-F , by implication, stands non-applicable. (b) An obligation to exist at the time of issuance of cheques is a crucial element to make out an offence under Section 489-F of PPC. If an issue arises as to the facts of the case and intention/agreement of the parties, this
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would be a matter for further investigation but an F.I.R would still have to be registered for the said investigation. He, while leaving determination of the said crucial element to this Court, submits that if cheques in question are admittedly guarantee cheques in the opinion of this Court, they would be missing one of the foundational requirements of Section 489-F of PPC (cheque issued to extinguish an existing obligation) and hence would not attract Section 489-F of PPC (as established by Superior Courts of Pakistan). (c) The ratio settled in "Muhammad Mumtaz Akhtar v. Additional Sessions Judge, etc." (PLJ 2021 Lahore 98) does apply to the instant case to the extent that Banking Courts have no jurisd iction to deal with business of microfinance institutions such as the Petitioner . However , General law, i.e. Cr.P.C. or PPC will still apply to Microfinance Institutions/petitioner and any application filed under Section 22-A/22-B of Cr.P.C. would be fully competent. 11. Haji Tariq Aziz Khokhar , besides adopting the arguments of Amicus Curiae, Isaam Bin Harris, submits: That an interesting and praise worthy aspect of the Prudential Regulations for Microfinance Banks (Rule 11), issued by the SBP is that it requires that the lending institution develops an internal policy for managing its own risk to borrower indebtedness exposure, provide responsible lending and minimize risk of the borrower for over indebtedness. The Microfinance Bank is required to take a written declaration from the borrower , whereby information may be obtained regarding their total debt exposure to facilities provided by any financial institution (whether bank/MFI/NBFC/ other MFBs etc.). The Microfinance Bank is then required to lend in a prudent manner, keeping in mind the repayment capacity of the borrower. This is an interesting move towards consumer protection, since the Microfinance Bank is now responsible in preventing over indebtedness of the borrower, instead of all reliance being placed upon financial judgment of the possibly illiterate and unaware borrower. Till date, no Microfinance Institution has approached the SBP requesting a clear interpretation of the Ordinance, and requesting for inclusion in its framework. This would perhaps evince the fact that Microfinance Banks are rather content with implementation of their own recovery procedures, and would rather not be regulated in that aspect, or conform to a supervised procedure. He has relied on an article titled 'Pakistan: A Protected Microfinance Borrower written by Arsala Kidwai and published in the Journal of International Development Law Organization (November, 2009).' WHA T WOULD CONSTITUTE AN OFFENCE UNDER SECTION 489-F OF PPC: 489-F PPC. Dishonestly issuing a cheque:- 12. Whoever dishonestly issues a cheque towards repayment of a loan or fulfilment of an obligation which is dishonoured on presentation, shall be punishable with imprisonment which may extend to three years, 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. 13. From a literal reading of Section 489-F of PPC it appears that for an offence to be made out, it is essential that all three elements are simultaneously present and discernible from the complainant/petitioner's application i.e. (i) issuance of cheque with a dishonest intention i.e. having knowledge that the recipient of the cheque is entitled to receive proceeds of the cheque and that the account upon which the said cheque is drawn is insufficiently funded, (ii) issued cheque must be for the purpose of repayment of a loan i.e. for shedding off a liability which has already accrued in favour of the recipient and against the drawer of the cheque and (iii) dishonouring of the cheque. The necessity of the presence of all three elements has been stressed upon by the Hon'ble Supreme Court of Pakistan in "Mian Allah Ditta v. The State and others" (2013 SCMR 51): "4...... Every transaction where a cheque is dishonored may not constitute an offence. The foundational elements to constitute an offence under this provision are issuance of a cheque with dishonest intent, the cheque should be towards repayment of a loan or fulfillment of an obligation and lastly that the cheque in question is dishonored." NRSP MICROFINANCE BANK VS. SCHEDULED BANK 14. The contention that the petitioner is not a Scheduled Bank and hence cheques issued by the petitioner do not pass the test of Section 489-F of PPC supposes albeit wrongly that the cheques drawn on the petitioner are not
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"cheques" for the purpose of Section 489-F of PPC. What is a cheque is defined in Negotiable Instruments Act, 1881 through Sections 3(b) & 6, reproduced above. 15. The services that the petitioner is allowed to render and functions that it is authorized to perform are provided in Sections 2(i)(a), 2(j) and 6 of the Microfinance Institutions Ordinance, 2001: "2(i)(a) "microfinance bank" means an institution licensed by State Bank under this Ordinance to establish and operate as microfinance bank 2(j) "microfinance services" means the financial and other related services specified in section 6, the value of which does not exceed such amount as the State Bank may , from time to time, determine; 6. Functions and powers: (1) A microfinance institution shall, in accordance with prudential regulations and subject to the terms and conditions of the license issued by the State bank , render assistance to micro-enterprises and provide microfinance services in a sustainable manner to poor persons, preferably poor women, with a view to alleviating poverty . (2) Without prejudice to the generality of the foregoing provisions, the powers and functions of microfinance institutions shall be:- a) to provide financing facilities, with or without collateral security , in cash or in kind, for such terms and subject to such conditions as may be prescribed, to poor persons for all types of economic activities including housing, but excluding business in foreign exchange transactions, except to receive remittanc es from abroad payable only in Pakistan Rupees to beneficiaries in Pakistan subject to rules and regulations and authorization issued by State Bank of Pakistan from time to time. b) to accept deposits. c) to accept pledges, mortgages, hypothecations or assignments to it of any kind of movable or immovable property for the purpose of securing loans and advances made by it; g) to provide storage and safe custody facilities; k) to provide services and facilities to customers to hedge various risks relating to microfinance activities; p) to pay , receive, collect and remit money and securities within the country; v) to undertake mobile banking to expedite transactions and reduce costs ; x) to receive grants from the government and any other sources permitted by the State Bank; and y) to generally do and perform all such acts, deeds and things as may be necessary , incidental or conducive to the fulfillment of their functions and the attainment of their objectives; 16. Section 4 of the Microfinance Institutions Ordinance, 2001 lays down that microfinance banks are established only after issuance of a license to opera te as such by the State Bank of Pakistan ("SBP"). The said license is granted by SBP under Sections 12 and 13 of the Microfinance Institutions Ordinance, 2001 and similarly can be cancelled by SBP under Section 13A. The petitioner Bank is recognized by SBP as its member Financial Institution and its name reflects at Serial No.6 among the recognized microfinance banks. It also provides regular banking services like opening and operation of current and savings accounts, issuance of cheque books and debit cards to its members/customers for withdrawal of money from their accounts and hence is covered under the definition of "banker" as given in Section 3(b) of Negotiable Instruments Act, 1881. 17. On the other hand, what is a scheduled bank is defined in Sections 2(m) and 37 of the SBP Act, 1956: "2 (m) "scheduled bank" means a bank for the time being include d in the list of banks maintained under sub- section (1) of Section 37 37. Scheduled banks. (1). The Bank shall maintain at all its offices and branches an up-todate list of banks declared by it to be scheduled banks under clause (a) of subsection (2). (2). The Bank shall, by notification, in the official Gazette-- a) declare any bank to be scheduled bank which is carrying on the business of banking in Pakistan and which-- (i) is a banking company as defined in section 227F of the Companies Act, 1913, or a co-operative bank, or a corporation or a company incorporated by or established under any law in force in any place in or outside Pakistan;
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(ii) has a paid-up capital and reserves of an aggregate value of not less than five lakhs of rupees: Provided that in the case of a co-operative bank, an exception may be made by the Bank; (iii). satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interest of its depositors;" 18. From a comparison of the provisions of the Microfinance Institutions Ordinance, 2001 and the SBP Act, 1956 it seems that both Scheduled Banks and microfinance banks provide services of acceptance of deposit by their customers and in turn obviously are bound to remit such deposits back to the depositor or any other person as per the direction of the depositor. The distinctive feature of a microfinance bank is that the value of its banking services is limited to the maximum limit defined by SBP [Section 2(j) of MIO, 2001 above) whereas no such limit is defined for the scheduled banks. The reason for such restriction for microfinance banks is apparent from the preamble of the Microfinance Institutions Ordinance, 2001 which states that such banks shall be established for specifically catering to the needs to citizens from lower social and financial strata of the society. For the said protection, the petitioner like all other microfinance banks is under an obligation to maintain depositors' protection fund under Section 19. 19. Depositors protection fund 1. A microfinance institution shall, as required by the State Bank, establish and maintain depositors' protection fund or scheme for the purpose of providing security or guarantee to persons depositing money in such institution. 2. Five per cent of the annual after tax profits of a microfinance institution and profits earned on the investments of the fund shall be credited to the depositors 'protection fund and such fund shall either be invested in Government securities or deposited with State Bank in a remunerative account. 3. The depositors' protection fund shall be used to make payment to the individual depositors with aggregate deposits of up to ten thousand rupees in case of liquidation of the microfinance institution." The premium upon the deposit by the members/customers of the petitioner is an additional advantage provided to ensure the alleviation of citizens with low income and minimal financial resources. Such premium, however, does not hinder any other services provided under Section 6 by the petitioner i.e. accepting and remitting deposits made by the members/customers. 19. Hence, both Scheduled Banks and microfinance Banks provide services of a banker in terms of Section 3(j) of Negotiable Instruments Act, 1881. Microfinance banks, however , are modelled in a beneficial manner to provide, support for and uplift of, persons with less financial resources and hence, are bound to operate in a manner to ensure some advantage to such persons. 20. There is no legal provision in sight differentiating the status of cheques drawn on microfinance banks and scheduled banks and hence, distinction between two seems insignificant for the purpose of Section 489-F. Petitioner does conduct regular banking business and Cheques issued by it are as much a Negotiable Instrument as those issued by any other Bank or Scheduled Bank and attract the provisions of Section 489-F. ARE CHEQUES ISSUED BY RESPONDENTS NO.3 T O 12 GUARANTEE CHEQUES? 21. It has been settled by the Hon'ble Supreme Court of Pakistan that if a cheque is merely issued as "guarantee" for the fulfilment of any future, undetermined and unexisting obligation, the dishonouring of the same would not constitute an of fence under Section 489-F PPC. 22. In "Mian Allah Ditta v . The State and others" ( 2013 SCMR 51 ), it has been held as follows:- "In the instant case, prima facie, the circumstances indicate that the cheque in question was not issued towards repayment of some outstanding loan or fulfillment of an existing obligation but instead it had been issued to meet a possible future obligation if determined as a result of some other exercise. That being so, one of the foundational elements of Section 489-F P.P.C. is prima facie missing. The invocation of penal provision would therefore remain a moot point. The ground that prosecution is motivated by malice may not in these circumstances be ill-founded." 23. Analysis of judicial precedents, on the subject show that it would be facts and circumstances of each case, which will determine if the cheque is issued for fulfilment of an…
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