Judicial obstacles in recovering default loans

08 February 2020

Mosharaf Hossain :
A bank's prime source of earning is lending of its depositors' money in the form of loans or advances, which are expected to come back with stipulated interest within the validity of the loan as per sanction terms and conditions. With this aim of earning, bankers create honeyed relation with borrowers and customers potential to be borrowers. The degree of sweetness progresses and deepens till the repayment of bank's loan continues. Such interest servicing borrowers are treated as the 'valued customers' of the bank. And, the value of these borrowers is so high that a top ranking depositor might be missed out from the yearly closing feast invitation of a bank, but a top borrower not.
But when the borrower turns his back to the bank, i.e., stops payment of bank loan, this sweetened relation starts to be both sour and bitter; and the happily knotted banker-customer tie starts to tear up. At the final stage, when all endeavors and arts of recovery applied by a banker turned fruitless, he resorts to the court of law to realize his lent out money and get rid of the concerned defaulting borrower.
Banker filed case and the defaulted loan is recovered-- is it so or can a bank root out all its non-performing loans from the notorious and long nourished defaulters in a smoother and expeditious process? It's not so at all. Recovery is the toughest job of all the roles played by a banker in a loan's life cycle; and in fact, in the career cycle of the banker himself. A loan's life cycle comes to an end with its recovery. But in this thorny race of recovery, a banker has to climb uphills and downhills for an indefinite but a longer period of time. This is because of the present judicial system, as it both aids and also creates obstacles in the recovery process of default loans.
Procrastination in disposal of cases is the major challenge and hurdle to recovery of non-performing loans (NPLs). Many loan defaulters are spared due to the judicial flaws and procrastination in disposal of money cases. According to a recent statement of Law Minister Anisul Huq in the Parliament, till September 2019, the total number of the cases pending with the country's higher and lower courts were 36,40,639! Banks' common cases comprise money loan cases, CR cases, certificate cases, bankruptcy cases, condemned petitions and writs, and cases referred to the alternative dispute resolution (ADR) system. According to the Bangladesh Bank (BB) statistics, a total of 62,204 cases were pending with the money loan courts until June 2019 involving funds worth Tk 1176.14 billion.
Because of the byways and loopholes in the judicial system, money loan cases of banks remain pending in the lower courts year after year. Though the major law--the Money Loan Court Act, 2003 relating to recovery of defaulted bank loans seems to be very commanding; it is, in practice, very puny and ineffective. Despite the Section 17 of the Money Loan Court Act, 2003 mandates disposal of the cases within a maximum of 120 days, courts can't dispose of most of the cases within this timeframe. In fact, courts take a much longer time in hearing and disposing of various petitions of the defendants. Defendants file writ petition in the High Court Division of the Supreme Court against any interim order of the lower court. The High Court Division, in many cases, by passing a stay order put off the proceedings of the lower court until disposal of the writ petition.
But disposal of a writ petition is a lengthy process. If the order of the writ petition also goes against the defendant, he then appeals against the order of the writ petition. The case thus keeps rotating. The main intention of the defendants is to keep the case pending at the stage of hearing in the lower court and thus they are benefited from it. Because, if they file an appeal against the decree of the lower court, they shall have to deposit 50 per cent of the decreed value to the lower court. That's why defendants are usually not willing to file an appeal against the decree of a lower court. For that reason they create many legal hurdles at the hearing stages in the case. That's why many money loan cases under the Money Loan Court Act, 2003 take even 8 to 10 years to settle.  
Besides, many bank loan defaulters, using their political identity and influence become successful in hanging the cases filed against them for an indefinite period of time. Though there is a provision under Section 4(1) of the Money Loan Court Act, 2003 to establish one or more  money loan courts in every district, it has yet not been possible. As a result number of money loan courts are insufficient in comparison with number of cases; and so cases under this act are tried in the Joint District Judge Court which is laden with other non-bank cases. Pendency of cases is also augmented by inadequate number of judges, transfer and leave of judges.  
On the other hand, a CR Case (for cheque bouncing) being criminal case is lodged with Chief Judicial Magistrate Court (for areas out of Metropolitan) and Chief Metropolitan Magistrate Court (for areas within Metropolitan); and after several hearings up to cognizance,  the case is transferred to Sessions Court, which results in elapsion of time and relaunching of the case. As a result, a CR case takes about 02 or more years to settle. Now a days it has also become quite difficult to file a CR case against the defaulters for fraud of cheque under the Negotiable Instrument Act, 1881 thanks to the recent judgment of the court against obtaining undated cheques from borrowers.
A Legal Adviser's negligence and dishonesty can also contribute to slow disposal. A lawyer may have several cases under trial in different courts. In many cases lawyers are found to neglect bank's cases and prioritize other cases since bank clears lawyers' professional bills at a later date after several hearings or after the settlement of the case. This happens most when a case is transferred to the Sessions Court from Magistrate Court. Lawyer leaves the responsibility of conducting the case on the public prosecutor of the concerned court. In many cases, during argument hearing he doesn't appear before the court or doesn't argue strongly; and thus fails to manage arrest warrant or shorter date of next hearing. There are also allegations that many legal advisers of banks take bribes from the defendants and in return don't argue strongly while hearing and thus facilitate bail and longer date of next hearing favoring the defendants.
Sued loan defaulters even file counter-case against the plaintiff banker with the ill intention of deliberately demoralizing and harassing the banker, if the bank pressurizes or goes harder for recovery. Besides, the existing provision of punishment for many financial scams and irregularities in banking is not proportionate to the depth of crime of the culprits concerned. If the punishment for looting of thousand crores of taka is imprisonment of a few months, borrowers will be encouraged to be defaulters and corrupt bankers with their collaborators will be provoked to do misdeeds. So punishment for financial crimes must be much more stern and exemplary so that defaulters and associating culprits of banking sector fear of such default and irregularities.
If we truly want to get benefit from the laws pertaining to recovery, procrastination must be cut down to minimum level as specified in the law. To get rid of procrastination and backlogs of the banks' cases, it has become essential to form a separate Bench in the High Court Division of the Supreme Court for speedy disposal of the writ petitions filed by the defendants in the case filed by bank by ensuring on-time hearings. This Bench will only hear and dispose of the writ petitions and appeals filed by or against the banks. A bar limiting the defaulters to file writ petition and appeal up to a certain amount of loan can also be put to tackle unnecessary and intentional resorting to higher courts. Provision of deposit of at least half or one-third of the decreed/disputed amount before filing any appeal can also add velocity to disposal of cases. In this way writ petitions and appeals will be disposed of in an accelerated way and the number of disposed of cases will be increased as well. On the other hand, Section 4 of the Money Loan Court Act, 2003 should be made functional by establishing one or more money loan courts with sufficient number of dedicated judges in each district for the trial of cases constituted by banks and financial institutions only. Necessary amendments to law may be done so that bank's CR cases for bounce of cheques or any kind of money recovery cases can be lodged and tried with money loan courts.
Recovery process to be geared up and made functional the banker, the judiciary and administrative bodies should play their due roles. Application of law is a major and must panacea for recovery of aging default loans. Making of law doesn't make any sense if it's not applied. In fact, any law in force is toothless if it's not implemented visibly. Application of law against the defaulters would create examples and thereafter borrowers would fear to default willfully. Special Police Wing for executing court orders against accused borrowers can be formed. This will accelerate the clearing process of the backlogs of court litigations.    
At the same time, corrupt bankers should not be spared by termination or dismissal from the job only. They should be penalized and punished as per the law. If the other concerned parties connected with vetting, valuation, rating are found guilty shall have to be brought to book. Similarly gov't officials associated with non-encumbrance certificate (NEC), registration and mutation etc of mortgage properties should be brought under punishment for any irregularities and forgery. But, for all the above strategies to work, the gov't must show its stern political commitment and good will against willful defaulters and there must have a good and easier exit process for the unwillful but aging defaulters.       

(Mosharaf Hossain, Principal Officer & Head of Branch, National Bank Limited, Pakundia Branch).

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