Commentary on The Punjab Prohibition of Interest on Private Loans Act 2022 (ACT XV OF 2022) & Khyber Pakhtunkhwa Prohibition of Interest on Private Loans Act (XVII of 2016)

The Punjab Prohibition of Interest on Private Loans Act: An Overview

The Punjab Prohibition of Interest on Private Loans Act 2022, commonly referred to as the PPI Act, is a significant piece of legislation that seeks to address the issues surrounding private money lending and the charging of interest on loans. This act replaces the earlier Punjab Prohibition of Private Money Lending Act 2007.

Objective of the PPI Act

The PPI Act, grounded in Islamic principles, strictly prohibits private money lending practices where interest is charged. The enactment of this legislation aims to eradicate the problems associated with private money lending and its related affairs.

Geographical Applicability

This act is specifically designed for the province of Punjab. However, it’s noteworthy to mention that other provinces also have their respective legislation on this matter.

Prohibiting Private Money Lending

As per Section 3(1) of the PPI Act, it is illegal for any money lender, whether acting alone or in a group, to lend money with the intention of charging interest. Specifically, Section 3(1) states:

“No money lender, either individually or in a group of persons, shall lend money for any moveable or immoveable good or in kind or any other purpose or advance loan to any person for the purpose of receiving interest thereon, nor shall carry on an interest-based transaction in the Province.”

Exemptions for Certain Entities

The PPI Act does not apply to institutions such as the Federal Government, Provincial Government, the State Bank of Pakistan, commercial or investment banks, leasing companies, modarabas, and other entities as mentioned in Section 2(a) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. These entities are exempted from the provisions of the PPI Act.

Penalties for Violating the Act

If a private money lender charges interest on a loan, they face stringent penalties. As per Sub-Section (2) of Section 3:

“Whoever contravenes the provisions of sub-section (1) shall be punished with imprisonment of either description, which may extend to ten years but shall not be less than three years, and shall also be liable to a fine not exceeding one million rupees.”

Punishment for Aiding and Abetting

The PPI Act also penalises those who assist or enable money lenders in recovering interest on loans. Such individuals face the same penalties as the money lenders themselves, as per Section 4.

Punishment for Harassing Debtors

Any person using force, intimidation, or any other means to compel a debtor to repay a loan or its interest is also punishable under the PPI Act. As stated in Section 5:

“Whoever molests any borrower or debtor, whether on his behalf or behalf of anybody else, intending to force such borrower or debtor to pay back any loan or debt or any part thereof or any interest thereupon, shall be punished with imprisonment of either description for a term which may extend to five years and shall also be liable to fine up to five hundred thousand rupees.”

Legal Proceedings and Offences

All offenses under the PPI Act are deemed serious, being both cognizable and non-bailable. This provision allows the police to arrest the offender without a magistrate’s warrant.

Extinguishing Interest Liability

Apart from prohibiting future liabilities based on interest, the PPI Act also nullifies any existing obligations of debtors to pay interest on current loans.

In Summary

The PPI Act is a protective measure designed to shield individuals from potential exploitation by private money lenders. It is essential to understand that private individuals cannot charge interest on loans, whereas official financial institutions and governments are exempted. Violation of this act results in substantial penalties.

Principles from the older The Punjab Prohibition of Private Money Lending Act, 2007

1. 2012 PCrLJ 1232 LAHORE-HIGH-COURT-LAHORE

• Parties Involved: ZIA ULLAH (Appellant) vs. State (Opponent)
• Issue: The case revolved around the prohibition of private money lending and the granting of bail. The accused was alleged to be running a money lending business against interest and had taken a cheque and property transfer as a guarantee from the complainant. The accused then allegedly began to blackmail the complainant and filed a case against him under S.489-F, P.P.C. for the provided cheque.
• Key Principles:
  • The Punjab Prohibition of Private Money Lending Act, 2007, prohibits the recovery of interest as defined in the Act. However, the Act does not prohibit other safeguards in the form of excessive money.
  • Voluntary transactions make both parties equally responsible.
  • Bail cannot be denied to the accused as a punishment.
  • The accused’s case was deemed one of further inquiry.
• Outcome: The bail petition of the accused was allowed, and he was granted bail.

2. 2022 SCMR 1168 SUPREME-COURT

• Parties Involved: MUHAMMAD NADEEM (Appellant) vs. MUHAMMAD KHURRAM IQBAL (Opponent)
• Issue: The case pertained to the prohibition on private money lending and the cancellation of pre-arrest bail. The High Court had granted the accused pre-arrest bail based on an arbitration deed, which stated that the accused was not involved in any money lending. The Supreme Court was to determine the validity of this deed.
• Key Principles:
  • An arbitration deed can be a basis for determining involvement in money lending.
  • Securing a deed or affidavit through duress or coercion is an offence under the law.
• Outcome: The Supreme Court found that the deed relied upon by the High Court was secured through duress and coercion. As a result, the pre-arrest bail granted to the accused was cancelled.

In essence, the Punjab Prohibition of Private Money Lending Act, 2007, aimed to prohibit private money lending practices that involve charging interest. However, the specifics of each case, such as the nature of transactions and the evidence provided, play a crucial role in determining the outcome in court.

Considerations in Prohibition of Private Money Lending Cases:

When interpreting and applying the Punjab Prohibition of Private Money Lending Act, 2007, courts take into account several key considerations:

1. Nature of Transactions: The courts examine the nature of the transactions between the parties. If the transactions are voluntary, both parties are held equally responsible for their actions. This was evident in the 2012 PCrLJ 1232 LAHORE-HIGH-COURT-LAHORE case, where both the lender and the borrower entered into an agreement voluntarily.
2. Evidence and Documentation: The presence or absence of documents, such as cheques, property transfers, or arbitration deeds, can significantly influence the court’s decision. In both cited cases, cheques and deeds played a pivotal role in determining the outcome.
3. Coercion and Duress: Any evidence suggesting that a party acted under duress or coercion can significantly impact the court’s decision. This was particularly evident in the 2022 SCMR 1168 SUPREME-COURT case, where the arbitration deed was found to have been obtained through coercive means.
4. Bail Considerations: When deciding on bail applications, the courts consider whether the accused’s further detention serves any useful purpose to the prosecution. The potential gravity of the offence is determined at the trial, and bail cannot be used as a form of punishment. This principle was highlighted in the 2012 PCrLJ 1232 LAHORE-HIGH-COURT-LAHORE case.
5. Role of Financial Institutions: The Punjab Prohibition of Private Money Lending Act, 2007, provides exemptions for official financial institutions and governments, both provincial and federal. This distinction between private individuals and official entities is essential in determining the applicability of the Act.
6. Interpretation of “Interest”: The Act prohibits the recovery of interest as defined within its provisions. However, the courts have noted that the Act does not explicitly prohibit other possible safeguards in the form of excessive money.

In conclusion, the Punjab Prohibition of Private Money Lending Act, 2007, provides a legal framework to protect individuals from potential exploitation by private money lenders. However, the application and interpretation of the Act depend on the specifics of each case. Courts consider various factors, including the nature of transactions, available evidence, and the presence of coercion or duress, to ensure justice is served.

Analytical Commentary on The Punjab Prohibition of Interest on Private Loans Act 2022 (ACT XV OF 2022)

Introduction: The Punjab Prohibition of Interest on Private Loans Act 2022 aims to prohibit private money lending and transactions based on interest, rooted in the Islamic injunctions against interest as laid out in the Holy Quran and Sunnah. This Act also aligns with the Constitution of the Islamic Republic of Pakistan’s objectives to adhere to Islamic principles.

1. Title, Jurisdiction, and Commencement: The Act is titled “The Punjab Prohibition of Interest on Private Loans Act, 2022”. It is applicable throughout Punjab and is enforceable immediately upon its enactment. This suggests an urgent need to address the issues related to private money lending in the province.

2. Definitions: This section provides clarity on terms used throughout the Act. Important definitions include ‘interest’, ‘money lender’, and ‘interest-based transactions’. The comprehensive nature of these definitions underscores the Act’s intent to cover a broad range of interest-based transactions and practices.

3. Prohibition of Private Money Lending: The Act strictly prohibits private money lending for interest in the Punjab province. Violation of this provision leads to severe penalties, emphasizing the government’s stern stance against interest-based private lending.

4. Punishment for Abetment: Beyond direct offenders, those aiding, abetting, or assisting in contravening the Act’s provisions are also liable for punishment. This ensures a broader net is cast to prevent circumvention of the law.

5. Punishment for Molestation: Protecting borrowers from intimidation or forceful repayment tactics signifies the Act’s commitment to safeguarding citizens’ rights and ensuring fair treatment.

6. Complaint: This section ensures that complaints regarding violations are promptly addressed, emphasizing the importance of swift action in these matters.

7. Extinguishing Interest-based Debt: By nullifying all existing obligations to pay interest upon the Act’s commencement, it retroactively addresses the issue, providing relief to borrowers already entangled in interest-based loans.

8-9. Judicial Matters: The Act dictates that only specific courts can try offenses, and all offenses under this Act are serious, being non-bailable and non-compoundable. This highlights the gravity with which these offenses are viewed.

10. Adjustment of Principal Amount: This provision ensures fairness by allowing interest already paid to count towards the principal amount, and if interest paid exceeds the principal, the excess must be returned, further protecting borrowers from exploitation.

11-12. Recovery and Appeals: These sections provide mechanisms for recovering penalties and allow for appeals, ensuring due process and justice.

13. Power to Deposit in Court: By allowing borrowers to deposit money into court if a lender refuses payment without interest, the Act provides an alternative solution for borrowers, ensuring they’re not trapped or unduly penalized.

14. Overriding Other Laws: This section establishes the Act’s supremacy over other existing laws, emphasizing its paramount importance.

15. Indemnity: By providing indemnity for actions done in good faith under the Act, it ensures that individuals acting in line with the Act’s provisions are protected.

16-17. Rule-making and Interpretation: These sections give the government the authority to make rules for the Act and state that the Holy Quran and Sunnah will guide any interpretations, reinforcing the Act’s foundation in Islamic principles.

18. Repeal: The Act repeals its predecessor from 2007, indicating an evolution in the legislative approach to the issue.

Other observations 

Social and Economic Implications:

Beyond its legal provisions, the Act has profound social and economic implications for the province of Punjab.

Economic Impacts:

1. Financial Institutions and Lending: While private individuals are prohibited from lending with interest, established financial institutions, including the State Bank of Pakistan and commercial banks, are exempt. This could centralize lending activities, thereby potentially stabilizing the financial sector by ensuring that loans are regulated and monitored by established institutions.
2. Borrower Protection: By providing avenues for borrowers to return excessive interest or make court deposits, the Act may increase public trust in the lending process, encouraging economic activity and investment.
3. Potential Impact on Informal Lending: The Act might reduce informal, interest-based lending practices. This could affect small-scale borrowers who might find it challenging to secure loans from formal institutions, potentially hindering some grassroots economic activities.

Social Impacts:

1. Alignment with Islamic Principles: Given that a significant portion of Punjab’s population is Muslim, the Act, which aligns with Islamic teachings, might resonate positively with the majority, fostering a sense of adherence to religious tenets.
2. Protection against Exploitation: By criminalizing intimidation and forceful tactics employed by lenders, the Act protects vulnerable segments of society, ensuring they are not trapped in debilitating cycles of debt.
3. Educational Opportunities: The Act, given its comprehensive nature, might necessitate educational campaigns to inform the public about its provisions, fostering a more informed citizenry regarding financial practices.

Challenges and Opportunities:

1. Implementation: While the Act is comprehensive in its scope, its success will largely depend on effective implementation. This includes ensuring that the police, judiciary, and other relevant authorities are well-versed with its provisions and are equipped to handle cases efficiently.
2. Potential for Alternative Lending Practices: Given the prohibition on interest-based lending, there might be a rise in alternative lending practices, such as profit-sharing or equity-based models, which align with Islamic principles.
3. Monitoring and Reporting: Ensuring that violations are promptly reported and addressed will be crucial. This might necessitate the establishment of dedicated monitoring bodies or helplines for borrowers to report malpractices.

In conclusion, The Punjab Prohibition of Interest on Private Loans Act 2022 represents a significant step in aligning the province’s financial practices with Islamic teachings. While it offers a robust framework to counter exploitative lending, its success will hinge on effective implementation, public awareness, and the adaptability of both lenders and borrowers to this new financial landscape. The Act, if implemented diligently, has the potential to foster a fairer, more equitable financial system in Punjab, ensuring protection for borrowers and aligning economic practices with deeply-held religious values.

The Khyber Pakhtunkhwa Prohibition of Interest on Private Loans Act, 2016, is a significant legislative step to ensure that financial transactions within the region align with the core tenets of Islamic teachings. This Act has brought about multiple legal debates and discussions, specifically concerning the correct procedure for registering complaints and FIRs under its provisions. A closer examination of the cases cited reveals the nuances and intricacies involved.

1. The Role of ‘Complaint’ Under Section 6

Citation: 2020 PLD 129 PESHAWAR-HIGH-COURT Parties: SAID BAKHSHAD vs State

This case delves into the scope and definition of the word ‘complaint’ as used in Section 6 of the Act. The petitioner, SAID BAKHSHAD, contended that for offences under the Act, no FIR could be registered, and only a complaint should be filed before the Justice of Peace. The High Court clarified that the term ‘complaint’ in this context does not follow the definition in S.2(h), Cr.P.C. Instead, it refers to its typical English usage. The Justice of Peace, as per the Court’s determination, cannot be termed a Court, and the proper avenue for a complaint to punish an offence is before a Court.

2. FIRs and the Question of Alternate Remedy

Citation: 2018 PCrLJ 1207 PESHAWAR-HIGH-COURT Parties: SEYAR ZEB vs State

This case focused on the quashing of FIRs lodged against the petitioners, arguing that they were in violation of Section 6 of the Act. The High Court noted that the allegations in the FIRs were regarding the illegal business of advancing loans with high interests. It was observed that the Station House Officer was competent to register an FIR under the Act. The Court emphasised that any claims of innocence or false implication should be addressed before the Trial Court through evidence.

3. Bail and The Importance of Following Procedures

Citation: 2017 YLR 2354 PESHAWAR-HIGH-COURT Parties: RAHMAT RAZAQ vs State

In this case, the accused were arrested based on FIRs registered directly with police stations without any direction from the Ex-Officio Justice of Peace. The High Court pointed out that the Police Officer, who was the complainant, did not follow the procedure under Section 6 of the Act. Since none of the cases was registered under orders from the Ex-Officio Justice of Peace, the Court determined that the law had been bypassed, leaving room for further inquiry into the guilt of each accused. Bail was granted in these circumstances.

4. Exploring Alternate and Efficacious Remedies

Citation: 2021 MLD 1627 PESHAWAR-HIGH-COURT Parties: Malik TAJAMAL HAYAT KHAN vs GOVERNMENT OF KHYBER PAKHTUNKHWA

In this case, the petitioner argued that his private complaint under S.200, Cr.P.C. was not sufficient for redressal as he had been defrauded by the respondents. The High Court noted that the petitioner had already approached appropriate forums for redressal of his grievances, including provisions under the Specific Relief Act, Trade Marks Act, Khyber Pakhtunkhwa Prohibition of Interest on Private Loans Act, and offences under the Penal Code.

Conclusion

The Khyber Pakhtunkhwa Prohibition of Interest on Private Loans Act, 2016, though a well-intentioned piece of legislation, has brought about several legal challenges, mainly centred around the procedures of registering complaints and FIRs. The cases discussed above showcase the complexities involved and highlight the importance of following the correct legal procedures to ensure justice is served. As the jurisprudence around this Act evolves, it is hoped that clearer guidelines and procedures will emerge, ensuring that the Act’s objectives are met while safeguarding the rights of all parties involved.

1. Avoid Interest Clauses: The primary objective of the Act is to prohibit the charging of interest. Any loan agreement, therefore, should refrain from having clauses that stipulate the payment of interest. Instead, consider profit-sharing mechanisms or other lawful modes of generating returns on loans or investments.
2. Clear Documentation: Even if the agreement is oral, it’s beneficial to maintain clear documentation about the terms and conditions. This not only provides clarity but can also serve as evidence in case of disputes. However, written agreements are always preferable for clarity and legal soundness.
3. Specify the Nature of the Transaction: Clearly outline whether the financial arrangement is a loan, an investment, a gift, or any other type of transaction. This can help in delineating the transaction from those that the Act seeks to regulate.
4. Familiarise with Section 6: As evident from the cases, there’s a significant emphasis on the procedure under Section 6 of the Act. Familiarising yourself with this can provide insights into how to ensure that any complaints or grievances related to the agreement are properly addressed.
5. Avoid Ambiguities: Ensure that the terms of the agreement are clear and devoid of ambiguities. Ambiguous terms can lead to interpretations that might inadvertently bring the agreement within the ambit of the Act.
6. Alternative Dispute Resolution: Consider incorporating alternative dispute resolution mechanisms like arbitration or mediation. This can help in resolving any potential disputes amicably and outside the purview of the courts, reducing the risk of the agreement being scrutinised under the Act.
7. Stay Updated with Jurisprudence: The interpretations and applications of the Act are still evolving, as seen from the discussed cases. Staying updated with the latest case law can provide insights into how the courts are viewing such agreements and what pitfalls to avoid.
8. Consultation with Legal Experts: Given the complexities and the nuances associated with the Act, it’s prudent to consult with legal experts familiar with the legislation before finalising any agreement. This can ensure that the agreement is compliant and doesn’t inadvertently violate the Act.
9. Educate Parties Involved: Ensure that all parties involved in the agreement are aware of the provisions of the Act and the implications of violating it. This can help in setting the right expectations and ensuring compliance from all sides.
10. Regular Review of Agreements: Given the evolving nature of the law, it’s advisable to periodically review and, if necessary, revise the agreements to ensure they remain compliant with the latest interpretations and provisions of the Act.

In conclusion, while the Khyber Pakhtunkhwa Prohibition of Interest on Private Loans Act, 2016 seeks to regulate certain types of financial transactions, with careful planning, clear documentation, and legal consultation, it’s possible to structure loan and investment agreements that align with the objectives of the Act while fulfilling the financial goals of the parties involved.

Based on the analysis of “The Punjab Prohibition of Interest on Private Loans Act 2022,” here are some key takeaways to ensure one does not fall foul of its provisions when lending money or entering into investment agreements in Punjab:

1. Avoid Interest Clauses: The Act’s essence is to prohibit the charging of interest on private loans. Consequently, any loan or investment agreement should entirely avoid clauses or terms that involve the payment or receipt of interest.
2. Distinguish Financial Institutions: The Act exempts “financial institutions,” which includes entities such as the State Bank of Pakistan and commercial banks. Ensure that your agreement clearly identifies whether it involves a financial institution or a private money lender.
3. Clarify Transaction Nature: It’s vital to explicitly state the nature of the financial transaction to avoid ambiguity. The Act has a broad definition of “interest-based transactions,” so ensuring that your transactions don’t fall into these categories will be crucial.
4. Stay Away from Molestation Practices: Using force, intimidation, or any other form of molestation to recover a debt can lead to serious penalties under the Act. It’s essential to employ lawful and ethical methods for debt recovery.
5. Documentation is Key: While the Act doesn’t specify the need for written agreements, having a clear and well-documented agreement can provide clarity and serve as evidence should any disputes arise.
6. Limitations on Money Lenders: If you’re acting as a money lender, be aware that the Act prohibits you from lending money with the purpose of receiving interest. This includes any transactions that may indirectly imply the charging of interest.
7. Be Aware of Abetment: Assisting or aiding a money lender in violating the Act’s provisions can lead to the same penalties as the primary offender. Thus, ensure that you’re not inadvertently facilitating or being part of such transactions.
8. Existing Interest Obligations: With the commencement of the Act, any existing obligations to pay interest on a debt stand extinguished. This implies that interest cannot be claimed on past transactions that were in violation of the Act.
9. Appeals & Legal Remedies: If aggrieved by a decision under this Act, there is a provision to appeal under the stipulated provisions. Familiarise yourself with these to ensure you have legal recourse if needed.
10. Guidance from Islamic Injunctions: The Act mandates that its interpretation and application should be in line with the injunctions of Islam as laid down in the Holy Quran and Sunnah. It might be beneficial to consult with experts who can bridge the understanding between Islamic finance principles and the Act’s provisions.
11. Periodic Review of Agreements: Given the comprehensive nature of the Act and the potential for evolving interpretations, it’s prudent to periodically review and, if necessary, update agreements to ensure compliance.
12. Legal Consultation: As with any legislation, particularly one that has profound implications on financial transactions, it’s recommended to seek the counsel of legal experts familiar with the Act before finalising any agreement.

In conclusion, the “Punjab Prohibition of Interest on Private Loans Act 2022” aims to align financial transactions with Islamic principles by prohibiting interest-based transactions. By being aware of its provisions, maintaining clear documentation, and seeking legal guidance, one can navigate the financial landscape of Punjab without inadvertently violating the Act.

Other considerations 

Powers of the Court: The Act bestows the trial court with the authority to adjust the principal amount if it’s proven that the money lender committed an offence under the Act. If a borrower has paid interest that exceeds the principal amount, the court can order the money lender to return the excess. Being aware of this provision is crucial when structuring loan repayments.

Recovery Methods: If penalties are imposed on a money lender under the Act, the court can order the sale of the lender’s assets to recover the amount. If asset sales are insufficient, the court can treat the unpaid amount as an arrear of land revenue. This serves as a deterrent and showcases the stringent measures in place for violations.

Override of Other Laws: The Act’s provisions take precedence over any other prevailing law in the Punjab province. This means that, regardless of any other agreements or laws, the stipulations of this Act must be adhered to.

Indemnity Clause: It’s worth noting that the Act provides indemnity for actions done in good faith in pursuance of the Act. This clause offers protection to those genuinely attempting to follow the Act, even if their actions inadvertently breach its provisions.

Deposit in Court: If a lender refuses to accept a repayment without interest, the borrower has the right to deposit the owed amount into the court. The court will then determine if the payment constitutes full or part satisfaction of the loan. This provision provides borrowers with a mechanism to clear their debts lawfully without succumbing to interest demands.

Guidance on Rules: The Government retains the right to make rules for the Act’s implementation. Keeping abreast of any such rules or guidelines will be essential for anyone involved in lending or investment agreements.

Repeal of Previous Act: The Act has repealed the Punjab Prohibition of Private Money Lending Act 2007. This indicates a renewed commitment to ensuring that private money lending aligns with the principles laid out in the 2022 Act.

Engage in Continuous Education: Given the significance of the Act and its alignment with Islamic principles, continuous education and training for those involved in financial transactions can prove beneficial. This will ensure that all stakeholders are aware of the Act’s nuances and can act accordingly.

In summary, “The Punjab Prohibition of Interest on Private Loans Act 2022” is a comprehensive legislation that seeks to eradicate interest-based transactions in Punjab, aligning with Islamic teachings. For individuals and entities involved in lending or investment agreements, understanding the Act’s nuances and seeking regular legal counsel will be paramount to ensure compliance and avoid severe penalties. Furthermore, building a culture of ethical lending and borrowing, grounded in the principles of fairness and equity, will go a long way in upholding the spirit of the Act.