No — a bank cannot legally sell mortgaged property through private negotiation without notifying the debtor and giving them a chance to match the offer, as required under Pakistan’s banking laws.
Discover how a family’s home was nearly lost to a secretive sale, leading to a landmark Supreme Court ruling on debtor rights.
In a quiet Lahore neighborhood, a family’s fight to save their home exposed a bank’s costly mistake, sparking a legal battle that changed the rules.
The trouble began when a family, struggling to repay a loan, put their cherished double-storied house up as collateral. The bank, owed over six hundred thousand rupees, won a court decree to recover its money by selling the mortgaged property. The family’s home, filled with years of laughter and memories, was now at risk. The bank first tried public auctions, as the law demanded, but no buyers came forward. Frustrated, the bank asked the court for permission to sell the property through private negotiation—a quieter, less transparent method.
The court allowed it, and soon, a buyer offered just over six hundred thousand rupees. The deal was done, the sale confirmed, and the family’s home changed hands. But there was a problem: no one told the family. They weren’t given a chance to match the buyer’s offer or save their home. When they learned their property was gone, their shock turned to anger. They took their fight to court, arguing the bank’s secretive sale was unfair and illegal.
The legal question was clear: can a bank sell mortgaged property through private negotiation without notifying the debtor or offering them a chance to redeem it? This wasn’t just about a house—it was about a family’s right to fairness under the law. The rules were strict. The Banking Tribunals Ordinance of 1984 allowed private sales but required the bank to notify the debtor and give them the option to buy the property at the same price. A newer law, the Banking Companies Act of 1997, went further, restricting sales to public auctions or sealed tenders, with a mandatory 30-day notice to the debtor to match any offer.
The family argued the bank broke both laws. They were never informed of the sale, let alone given a chance to reclaim their home. The bank countered that the court’s approval was enough and the family, having defaulted on the loan, had no say. The buyer, who had paid for the property, insisted the sale was valid. The dispute reached Pakistan’s Supreme Court, where the truth would come to light.
The court dug into the details. When the sale happened, the 1997 Act was in force, meaning private negotiation was no longer allowed without sealed tenders and a 30-day notice to the debtor. The bank’s private sale didn’t follow these rules. Even under the older 1984 law, the failure to notify the family was a clear violation. The court also questioned the lower court’s decision to allow a private sale without explaining why public auctions were abandoned. Changing the sale method was possible, but only with careful reasoning—something the bank and court failed to provide.
The Supreme Court’s verdict was firm: the private sale was illegal. Selling mortgaged property through private negotiation without notifying the debtor was against the law. The sale was set aside, and the court ordered a fresh public auction. The buyer would get their money back, plus 10% yearly profit and utility bill refunds. Any extra funds from the new auction would go to the family. The ruling protected the debtor’s right to transparency and fairness, ensuring banks couldn’t bypass legal safeguards.
For the family, it was a bittersweet victory. They had a chance to save their home, but the ordeal left scars. The case sent a strong message: selling mortgaged property through private negotiation demands strict compliance with the law. Banks must notify debtors, and courts must ensure transparency. This ruling restored hope for families facing similar battles, proving the law could protect their rights.
This story is based on a real judgment passed by the Supreme Court of Pakistan in 2016.
FAQs
Can a bank sell mortgaged property through private negotiation without informing the debtor?
No, a bank cannot sell mortgaged property through private negotiation without notifying the debtor and giving them a chance to match the offer, as required by Pakistan’s banking laws.
What happens if a bank sells mortgaged property illegally?
If a bank sells mortgaged property through private negotiation without proper notice, the sale can be declared illegal, and the court may order a fresh public auction to protect the debtor’s rights.
What rights do debtors have when their mortgaged property is sold?
Debtors have the right to be notified and offered a chance to purchase or redeem their mortgaged property at the same price as any offer in a private sale or tender process.
Can a court switch from public auction to private sale for mortgaged property?
Yes, but only with clear justification and transparency. Selling mortgaged property through private negotiation without proper reasoning or debtor notification is illegal.
What laws govern selling mortgaged property in Pakistan?
The Banking Companies Act of 1997 and the earlier 1984 Ordinance require public auctions or sealed tenders for selling mortgaged property, with mandatory debtor notification.
Disclaimer
This blog is for public awareness only and does not constitute legal advice.
