LAHORE: Pakistan does not suffer from a shortage of laws against bank default, cartelisation or tax evasion. What it suffers from is a system where delay destroys deterrence and, perversely, rewards the wrongdoer.
Over time, this has converted litigation into a financial strategy rather than a legal remedy. This problem is not unique to Pakistan. In every economy, disputes over loans, penalties and regulatory fines can take years to resolve. However, what makes Pakistan different is that once a matter enters the courts, interest on defaulted amounts is suspended, while inflation, currency depreciation and asset prices continue to rise relentlessly. The result is that time itself becomes an ally of the defaulter.
In most countries, delay does not pay. Interest continues to accrue during litigation, often at penal rates. Courts routinely award damages, compound interest and costs. Regulatory fines are sometimes indexed to inflation or linked to turnover. While cases may move slowly, the real value of the liability is protected. In Pakistan, the opposite happens.
Consider the case of bank loan recovery. When a borrower defaults and the bank moves the court for recovery, the law effectively freezes the financial liability. Interest is suspended, and the defaulter deploys every available tactic to delay proceedings — seeking adjournments, filing objections, challenging jurisdiction and exhausting appeals. This process can take decades.
Meanwhile, the mortgaged property — often urban land — appreciates sharply. By the time the court finally orders an auction, the value of the asset far exceeds the original loan. The bank recovers only the principal amount, without interest for the intervening years, while the surplus proceeds — after deducting limited charges — are returned to the defaulter. The bank loses not only interest income but also the opportunity cost of funds that could have been deployed productively elsewhere. The defaulter, meanwhile, walks away enriched.
In 1998, a ruling family handed over the mill’s land in Kot Lakhpat Industrial Area to banks to cover a default estimated at around Rs2.5 billion. The decision, opposed by several family members challenged the move in court. The litigation dragged on for nearly two decades.
By the time the matter was resolved, the land — by then suitable for real estate development — was worth many multiples of the original liability. The banks recovered their principal, without interest for 17 to 18 years, while the defaulters received the remaining value. The lesson was unmistakable: default, if prolonged through litigation, can be extraordinarily profitable.
This is not an isolated case. Hundreds of billions of rupees in tax demands, customs penalties and regulatory fines remain sub judice. Even if decided today, their nominal values bear little resemblance to their original economic significance. Delays have effectively turned punishment into subsidy.
The Competition Commission of Pakistan (CCP) levied a collective fine of Rs 6.35 billion on 20 cement manufacturers in 2009. The penalties were imposed for violations of Section 4 of the Competition Act, which prohibits agreements that restrict or reduce competition, specifically regarding price-fixing and fixing production quotas. The dollar was traded at Rs82 against dollar at that time. There is no interest on delayed payment of penalty. The case is still pending.
The solution is neither radical nor unjust. Courts and legislators must recognise that money has a time value, especially in an economy prone to inflation and currency depreciation. When a recovery suit or penalty case is filed, the liability should be recorded in real terms — linked either to the dollar or to gold prices prevailing at the time the default or fine was imposed.
Speedy adjudication of financial misconduct — combined with protection of real value — would restore discipline to credit markets, strengthen regulatory enforcement and significantly improve public finances. More importantly, it would re-establish a basic principle of justice: that time should not reward wrongdoing.
