The Lahore High Court has dismissed an appeal seeking to adjust a former bank employee’s outstanding loan against roughly Rs1.5 million in provident fund, gratuity and other employment dues, holding that a bank cannot be compelled to recover a loan from such benefits.
A two-member bench comprising Justice Khalid Ishaq and Justice Muhammad Usman Ghani heard the appeal filed by Gul Hassan Khan and others against a private bank. The 10-page written judgment was authored by Justice Usman Ghani Rashid Cheema.
Appellants Sought Deduction Before Recovery
According to the judgment, the appellants argued that approximately Rs1.5 million belonging to the former bank employee — held by the bank as provident fund, gratuity and other employment benefits — should be applied to the outstanding loan before the bank pursued recovery of the remaining debt.
Court Draws Line Between Employment Dues and Loan Recovery
Rejecting the plea, the court observed that the mere fact a bank held money belonging to a former employee did not mean it was legally bound to use those funds to settle the employee’s loan.
The judgment clarified that payment of employment benefits and recovery of a loan are two separate legal matters. While a bank may, subject to applicable legal requirements, adjust funds held in one account against a liability in another, the exercise of that right remains the bank’s discretion and cannot be imposed on it by a customer through court proceedings.
The court further noted that provident fund, gratuity and other employment-related dues are held by the bank in its capacity as an employer rather than as a banker. Any grievance over delay or non-payment of such benefits could be brought before the relevant competent forum, whereas a banking court deals with matters relating to loan recovery.
No Compulsion Even Where Employer and Lender Are the Same
The judgment stated that even if a bank employee borrows money from the same institution where they work, they cannot compel the bank to deduct the outstanding loan from their provident fund, gratuity or other employment benefits.
Decree for Rs10.18 Million Upheld
Upholding the banking court’s decision, the LHC ruled that there was no legal error in the decree issued in favour of the private bank for Rs10,177,705. The court dismissed the appeal filed by the former employee and other appellants, maintaining the decision for recovery of the outstanding loan.
