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 PPC 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 PPC).
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 PPC 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 PPC 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).
1. According to clause (xxxiii-a) of Rule 2(1) of the Non-Banking Finance Companies (Establishment and Regulations) Rules 2003, "NBFC" means a non-banking finance company which includes companies licensed by the SECP to carry out any one or more forms of business as specified in clause (a) of section 282A of the Companies Ordinance 1984.
2. Regulation 2 (xxxiv-a) of the 2008 Regulations.
3. Regulation 2 (xxvii-b) of the 2008 Regulations.
4. Section 509(1) of the Companies Act 2017 saves Part VIII-A consisting of sections 282A to 282N of the repealed Companies Ordinance 1984.
5. SECP notified the assumption of regulatory supervision of NBFCs vide Circular No.15 of 2002 dated December 2, 2002, and SBP updated the list of its licensed entities vide Circular No.06 of 2003 dated February 25, 2003.
[6]Section 2(a) of the FIO defines "financial institution" as follows:
2. Definitions.- In this Ordinance, unless there is anything repugnant in the subject or context -
(a) "financial institution" means and includes -
(i) any company whether incorporated within or outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan and includes a government savings bank, but excludes the State Bank of Pakistan;
(ii) a modaraba or modaraba management company, leasing company, investment bank, venture capital company, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company; and
(iii) any company authorized by law to carry on any similar business, as the Federal Government may by notification in the official Gazette, specify.