CJ vows to act against default, loan write-off

ISLAMABAD: Chief Justice Iftikhar Mohammad Chaudhry promised on Tuesday ‘across-the-board’ action against people who got huge amounts of loans written off and asked State Bank Governor Syed Saleem Raza to collect details of all loans written off since 1971 with the assistance of heads of lending banks and financial institutions.

“For nation’s sake we are ready to accept any blame for our involvement in the loan write-off matter, but across-the-board action will be taken after providing opportunity to the bankers and the defaulters to pay back the outstanding money,” he observed.

He said he thought parliament would legislate in the matter but nothing had been done.

A three-judge bench comprising the chief justice, Justice Anwar Zaheer Jamali and Justice Khilji Arif Hussain took suo motu notice of a report published in a section of the press which alleged the SBP had approved a scheme to quietly write off Rs54.6 billion loans obtained from different commercial banks during the government of Pervez Musharraf.

The court also attached a letter of MQM chief Altaf Hussain calling for recovering the nation’s money.

“We know resistance will come from all vested interests, but we will see it off,” the chief justice observed. He said that those responsible would be taken to task but after providing them an opportunity to defend themselves.

“This is criminal, dishonesty, financial indiscipline and a source of uncertainty in the country,” the chief justice remarked when informed that in one case a loan of Rs500 million was settled for Rs40 million and that too in instalments over three years.

The court decided to examine vires of Circular 29 of 2002 under which Section 33(b) of the Banking Companies Ordinance 1962 was amended by the SBP to provide opportunity to borrowers to settle their outstanding liabilities on flexible terms and, where possible, help in revival of their businesses or sick units.

The SBP submitted a list of 33 commercial banks and four development financial institutions (DFIs) which wrote off Rs193.4 billion in loans taken by 93 borrowers. The total principal amount was Rs69.4 billion. It swelled to Rs193 billion after mark-up and other calculations.

WAIVER

 In a voluminous report submitted by the SBP, the court was informed that the National Bank had waived the actual amount of the Punjab Sugar Mills owned by Chaudhry Shujaat Hussain, Chaudhry Mansoor Elahi, former Punjab chief minister Chaudhry Pervez Elahi, Chaudhry Gulzar Mohammad, Chaudhry Wajahat Hussain, Chaudhry Sabhat Elahi, etc.

Similarly, another outstanding loan was written off by the United Bank against the same mills. The UBL also wrote off a loan outstanding against Spaco Private Limited and this time again the beneficiaries were Chaudhry Pervez Elahi, Shujaat Hussain, Manzoor Elahi, Wajahat Hussain, etc.

Other prominent beneficiaries include the family of former speaker Gohar Ayub Khan, former Balochistan chief minister Jam Yousuf, former housing minister Abbas Sarfraz, Lt-Gen Habibullah, Brig M. Jan, Saifullah family of Lucky Marwat, including Anwar Saifullah Khan, Javed Saifullah and Humayun Saifullah, Arbab Saddaullah Khan, Mrs Kalsoom Saifullah, Barjees Tahir, Jafar Khan Leghari, Jamil Ahmed Khan Leghari, Yousuf Khan Leghari, Tariq Khan Leghari and Atta Mohammad Leghari.

The Supreme Court said it would examine circular 29 on the touchstone of Article 25 (equality of citizens) of the Constitution to determine whether discrimination was done while extending benefit to politicians and other influentials by waiving off their loans, but denying the same facility to people who had a respect for law and willing to pay back what they owed.

The court will also examine the legality of any other circulars if issued by the SBP from 1971 onward.

The court also hinted at appointment of a judicial commission and called for a record of recommendations made by the Beg committee in 1980. The committee had suggested a concession for borrowers enabling them to get their mark-up written off after repaying the principal. The case will be taken up on Feb 2.

Advocate Iqbal Haider, counsel for the SBP, argued that any favour done illegally should be recovered, but there were provisions in SBP rules that allowed writing off ‘bad loans’.

He said that loans of over 49,000 borrowers had been adjusted while a list of loans written off since 1971 was being compiled.

Advocate Khawaja Farooq, representing the National Bank, said that loans were always written off under the authority of SBP after declaring them “dead woods or non-performing loans” because neither the borrower nor the nation was earning on these loans.

Senior lawyer Hafeez Pirzada, who had earlier been appearing as amicus curiae in the case, deplored that nothing could be more immoral than circular 29 under which a huge amount had been siphoned off. He said the banks had played havoc through this circular by letting “crooks and culprits” get away with the loans.

“They are writing off loans of those who are not paying back, but punishing and crushing those who are honestly paying back,” he added.

The chief justice observed that banks even sanctioned loans on a ‘simple page’ whenever political pressure came.

Based on a secret report to the Public Accounts Committee of the National Assembly, a report in the press had said that 50,427 persons, including politicians, civil and military business concerns and business tycoons of Karachi, Lahore and other cities had benefited from the scheme to get outstanding loans waived off in 2002.

The report said that two former chief ministers’ families having big business concerns like sugar and ghee mills had got their outstanding loans written off.

Some foreign firms and multinational companies and a private bus service operating from Lahore were also extended the facility.

Soon after the 2002 election, then finance minister Shaukat Aziz and his financial team in the SBP approved the loan write-off scheme after succumbing to pressure from some top politicians of the then ruling party.

Instead of launching a campaign to recover non-performing loans (NPL), the SBP introduced an incentive scheme for banks and DFIs in Oct 2002 to waive off the NPL of organisations showing ‘loss’ for three years or more after dividing it into three categories.

Category-A included NPL of up to Rs0.5 million, category-B included NPL ranging between Rs0.5 million and Rs2.5 million, while category-C covered loans exceeding Rs2.5 million.

Politicians and big business concerns exploited the third category to get billions of rupees outstanding loans written off.

Shockingly, the report said, banks and DFIs were asked to recover maximum possible amount to settle loans falling under categories B and C through forced sale of available assets. The purpose of the scheme was to clean balance sheets owned by banks and DFIs.

The banks and DFIs settled over 50,427 cases involving a total outstanding amount of Rs80.656 billion.