The High Court has recently made a ruling that may have significant implications for banks and other lenders in recovering unpaid loans. The court held that banks cannot collect interest and penalties on loans for a prolonged period without making any attempts to recover the money or filing a lawsuit.
The case involved BML, which had filed a lawsuit against a borrower, Hussain Waheed, in 2016 for non-payment of a loan in accordance with the agreement between the bank and the borrower. Last year, the magistrate court ruled that BML could not recover the loan interest and penalty for the period between the expiry date of the loan agreement in 2002 and the filing of the case. However, the court ruled that BML could claim the money for the period after the case was submitted to the court.
The High Court ruled that the bank had the power to take action if the loan was not repaid, and had not shown a reasonable reason for not taking action or filing a lawsuit for so long. The judgment noted that delayed payment increases the interest and penalties owed by the borrower, which is to the detriment of the borrower. Therefore, if the loan money due to the bank remains unpaid by the agreed due date with interest and penalty and thereafter remains unpaid, it should be claimed within a reasonable time.
Referring to the Rules of Interpretation Act, the court held that although no law specifies a specific period within which a lawsuit must be filed, it is the responsibility of the bank to take action as soon as possible. The court further held that the lender should file a lawsuit within a reasonable time to recover the loan amount as the delay in payment of the loan amount will increase the interest and penalty payable.
The judgment also noted that BML would benefit if the bank had made reasonable efforts to recover the money even in the event of delay without suing. In such a case, the interest and penalty could be charged for the period even if a long time had passed. However, the judges said it was not known whether such work had been done since.
In summary, this ruling by the High Court highlights the importance of lenders taking timely action to recover unpaid loans. It is not enough to wait for long periods before attempting to recover the money or filing a lawsuit. If lenders fail to take timely action, they may not be able to claim interest and penalties on the unpaid loan for the period in question. As such, banks and other lenders should review their practices and policies to ensure they are complying with the ruling and taking the necessary actions to recover unpaid loans within a reasonable time.