Pakistan’s business environment is not being undermined by an absence of laws or institutions; it is being damaged by the systematic misuse of those very instruments.
One of the most corrosive yet under-acknowledged obstacles to fair business practices in the country is the growing tendency to convert routine commercial, contractual and financial disputes into criminal cases. This practice, now deeply embedded in enforcement behaviour and litigation strategy, imposes high economic costs on businesses, discourages investment and erodes confidence in rule of law.
At the centre of this problem lies the weaponisation of criminal provisions of the Pakistan Penal Code, particularly sections 406 (criminal breach of trust), 420 (cheating) and 489-F (dishonoured cheque). These provisions, originally intended to punish deliberate fraud and deception, are increasingly invoked in fundamentally civil matters, including contractual disputes, delayed payments, disputed invoices, failed business ventures and disagreements over performance obligations. What should be resolved through civil courts and commercial remedies is instead dragged into police stations and criminal courts.
This transformation of commercial disputes into criminal cases creates a coercive enforcement ecosystem. The police, prosecution and criminal courts become instruments of leverage rather than impartial arbiters of justice. The mere registration of an FIR carries consequences severe enough to compel settlements irrespective of merit: arrest, travel restrictions, reputational damage and prolonged litigation. For businesses, especially small and medium enterprises (SMEs), exporters and startups, the threat of criminal proceedings often leaves little choice but to capitulate.
The real issue is not that Pakistan lacks civil remedies. The legal framework already provides for recovery suits, arbitration, insolvency proceedings, execution of decrees and other commercial dispute resolution mechanisms. The problem lies at the entry point of the justice system: misclassification. When a dispute arising from a contract or commercial transaction is mischaracterised as a criminal offence at the FIR stage, the entire legal process is distorted from the outset. The threshold requirement of ‘mens rea’ (criminal intent) is ignored, and liability is presumed simply because a financial obligation remains unmet.
This distortion is reinforced by a critical procedural loophole in the Code of Criminal Procedure (CrPC), particularly Sections 22-A and 22-B. These provisions were introduced to protect citizens from police inaction by empowering magistrates to order registration of FIRs where cognisable offences are disclosed. In practice, however, they have become a mechanical tool for forcing FIR registration without meaningful judicial scrutiny of whether the alleged facts actually constitute a criminal offence. Magistrates, burdened with heavy caseloads and cautious of appellate scrutiny, often order FIR registration as a matter of routine, deferring substantive evaluation to a later stage.
The consequence is predictable. Once an FIR is registered, the balance of power shifts decisively. Criminal law, with its punitive force, replaces civil adjudication, which relies on procedural safeguards and evidentiary standards. Police investigation becomes a pressure tactic rather than a fact-finding exercise. Arrests are used as negotiation tools. Jurisdictional forum shopping becomes rampant, with complainants filing FIRs in distant districts to maximise inconvenience and leverage. Businesses are forced to divert management time, legal resources and financial capital away from productive activity merely to survive the process.
This phenomenon has particularly damaging implications for Pakistan’s export sector. Exporters operate on thin margins, tight timelines and complex international supply chains. Payment delays, quality disputes and performance disagreements are common in cross-border trade. When such disputes escalate into criminal cases domestically, exporters face shipment disruptions, loss of foreign buyers and reputational harm in international markets. For a country already struggling with export competitiveness, such internal legal uncertainty acts as a self-inflicted handicap.
Foreign investors are equally sensitive to this risk. While Pakistan routinely highlights its investment laws, arbitration statutes, and special economic zones, investors assess the system based on enforcement reality rather than formal promises. The prospect that a commercial disagreement could result in criminal proceedings, arrests or travel bans is a powerful deterrent. It raises the perceived cost of doing business and reinforces the narrative that Pakistan’s legal environment is unpredictable and enforcement-driven rather than rules-based.
The misuse of criminal law in commercial disputes also clogs the criminal justice system itself. Police resources are diverted from serious crimes to pursue private recovery disputes. Criminal courts are burdened with cases that should never have entered their jurisdiction. This crowding-out effect delays justice for genuine victims of crime while simultaneously trivialising criminal law by applying it to matters of private commercial risk. The result is inefficiency on both fronts: civil justice is delayed and criminal justice is diluted.
Beyond FIR misuse, this problem is compounded by several adjacent structural practices that collectively impede fair business operations. These include arbitrary sealing of business premises by regulators, discretionary tax enforcement without timely adjudication, excessive documentation requirements, overlapping jurisdiction of federal and provincial authorities and prolonged stays or injunctions that freeze commercial activity for years. Each of these mechanisms, such as the criminalisation of disputes, relies on enforcement pressure rather than adjudicative clarity and imposes heavy compliance and opportunity costs on businesses.
Time is among the most valuable resources wasted in this environment. Senior management time is consumed by court appearances, police inquiries, and negotiations under duress. Legal costs escalate disproportionately to the value of the underlying dispute. Entrepreneurs and professionals increasingly factor ‘legal friction’ into their business decisions, often opting for informal arrangements, reduced scale or outright exit rather than exposure to coercive enforcement. This has long-term implications for formalisation, documentation and tax compliance, ironically undermining the state’s own objectives.
The way forward is neither radical nor unprecedented. What is required is a recalibration of legal boundaries and procedural discipline. First, there must be mandatory judicial screening before FIR registration in financial and commercial disputes. Magistrates should be required to record prima facie satisfaction regarding criminal intent, not merely the existence of a monetary claim. This is consistent with settled jurisprudence but needs statutory reinforcement and procedural clarity.
Second, the distinction between civil liability and criminal culpability must be clearly articulated in law and practice. Failure to perform a contract, delayed payment, or business loss even if negligent or commercially imprudent should not be equated with cheating or breach of trust unless accompanied by demonstrable fraudulent intent at inception. Clear legislative guidance, coupled with training of police and magistrates, can significantly reduce misuse.
Third, court-approved settlements, consent decrees and installment arrangements must be given statutory protection against subsequent criminal proceedings on the same cause of action. At present, even after civil compromise, criminal cases are often kept alive as leverage. This undermines alternative dispute resolution and discourages negotiated outcomes.
Fourth, penalties for malicious or frivolous FIR filing in commercial matters must be introduced and enforced. Without consequences, abuse will persist. A system that punishes only the accused but never the abuser creates perverse incentives and normalises coercion as a business strategy.
The objective of these reforms is not to deny justice to victims of genuine fraud. Criminal law plays a vital role in addressing deliberate deception, embezzlement and other financial crimes. The objective is to ensure that criminal law is applied only where genuine criminality exists, not as a substitute for civil recovery nor as a shortcut to commercial advantage.
Ultimately, this is a structural governance issue. It speaks to how the state balances coercive power with economic freedom, and how it signals predictability to those who invest, produce and trade. If Pakistan is serious about improving its business climate, attracting investment and promoting exports, it must confront this problem directly. Legislative reform, procedural safeguards and institutional accountability are no longer optional; they are urgent.
Until criminal law is removed from the toolbox of commercial coercion, Pakistan’s businesses will continue to operate under legal uncertainty, wasted resources and constant defensive posture. That is a cost the economy can no longer afford.
The writer is a trade facilitation expert, working with the federal government of Pakistan.
