The Banker, The Borrower and Their Balance

Recent prime-time coverage concerning a Forbes billionaire / Mr. Vijay Mallya/ theself-proclaimed “King of Good Times” and various Nationalised Banks seeking recovery, has engaged adequate public attention. Mr. Mallya’s condemnation as the perpetrator and the Bank’s portrayal as hapless victim/(s), raises various pertinent / logical questions of public significance, e.g.- Why are our Banks being presented in such a hapless and pitiful state? Why can’t they proceed against the secured assets? Are they not in possession of secured assets? /or are they not in possession adequate secured assets? If they are not in possession / or in possession of adequate secured assets, then how did they sanction such loan? And further disburse them?Why did the Supreme Court query - How did the Banks’ give such loans “without securing adequate assets as guarantee”¹. These questions must be first asked, before the debate shifts / focuses on a Borrower. Undoubtedly, if the Banks sanctioned and disbursed funds without obtaining adequate securities, there will be not one but infinite Mr.Borrower’s waiting in the wings to rob and decamp with public monies.

Money lending is ancient and integral to any civilized economy. Business whether big or small needs money and banks provide just that. Almost 400 years ago, in the celebrated play “Merchant of Venice”², the Bard of Avon through the money lender / Shylock and the borrower / Antonio, dialogued –

 “If you repay me not on such a day,

In such a place, such sum or sums as are

Express’d in the condition, let the forfeit

Be nominated  for  an  equal  pound

Of your fair flesh, to be cut off and taken

In what part of your body pleaseth  me.”

Just as Antonio defaulted, Borrowers often default in repayment whether for bonafide, malafide or other analogous reasons. Prior to 1993, the jurisdiction of ordinary Civil Court’s were invoked to recover such “debt”. The Narasimham Committee reported that as on 30.09.1990, a sum of more than Rs.6,013/- crores of Public Sector Banks and Financial Institutions, were lying to be recovered in various recovery proceedings. Consequently, Parliament enacted the Recovery of Debt Due to Banks and Financial Institutions Act,1993 creating a special Forum / Tribunal to deal exclusively and aid in the recovery of such loans. Within ten years, it was found to be wanting. To add teeth and more weaponry to their armoury, in 2002 – Parliament enacted The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Amongst others, it contains the much feared draconian clause³ that enable Bank’s to take immediate possession of any secured asset and further transfer / sale / lease such secured asset at their discretion and without the intervention of any Court /Tribunal. In other words, today in India a robust, dynamic and an aggressive legal framework exists to aid and enforce recovery.

In a situation like the present, where public attention is engaged to a case specific, prejudices and biases are invariably created. One such outcome, as apparent is that Borrowers are defaulters who need to be admonished and dealt sternly, because the fault always lies at their door. There is already public outcry for further stricter laws and penalisation of all Borrowers. They may be asked to deposit their Passports by the Tribunals, in fear that they may exit the country.

While a Borrower may escape or suffer the dragnet of law / or make payment / settle his dues / or fail to do so, there is every possibility / likelihood, that in this wake – the grievances of even genuine and bonafide defaulters, who may have defaulted for reasons attributable to the Lender, e.g., the Lender not honouring the terms of sanction, not disbursing amounts in accordance with the terms of sanction, wrongly declaring an account NPA (non-performing asset), delaying the disbursal of sanctioned amount for vested reasons and in turn adversely affecting the viability of a Project for which such loan was obtained, would have no takers / or listeners. They too, would be painted with the same brush / colour. Lenders liability is not a concept but a right duly recognised by the Supreme Court in Mardia Chemicals⁴. A Court of law is required to treat both the Borrower and the Lender alike. The recent episode where evidently, Banks are equally culpable and responsible, is likely to tilt all scales against the Borrower. Had the Banks been responsible or were not culpable, the Supreme Court would not have asked the question referred above.

The next logical question is, what does the law provide when the Bank’s themselves have acted in concert and collusion with the Lender. Both the Act(s) of 1993 and 2002 do not address this issue. They are oblivious to such an eventuality. In ordinary parlance, it would be wise to suggest that if the Bank’s have been negligent or in collusion, they must suffer their consequences. However, since Bank’s represent public money, the larger question arises. The lawmakers would do well, to address this issue. Within the existing legal framework, the Lender contrary to popular perception / portrayal is neither a hapless victim nor a toothless innocent. They are well empowered and protected by law. They do not need any judicial or public sympathy. They must be treated equal before the law.

With the economy poised to surge ahead, it is imperative that the lawmakers and law enforcers ensure, implement and maintain the delicate balance between competing and rival rights / obligations of both the Borrower and the Banker. One such step, would be to ensure that the Tribunal is not reduced to a mere “recovery agent” but made to perform a vigorous, unbiased and impartial adjudicatory role. There is both a lesson and caution for the Lender and the Tribunals that enforce the law. The law must be complied with equal gusto against the Borrower and the Banker alike.Consequently, the unlawful and knee-jerk direction to deposit Passports, if any, withdrawn⁵. While the King’s “Good Times” may be over for now, the law must not yield and deviate to such eventualities.