Legal opinion regarding the queries as to disbursement of credit facilities through due process and subsequent repayment procedure vide operation of law

LJ/BAF-HO/MNS-ASH-AMM/2011      

Wednesday, August 03, 2011

Managing Director

Bank Alfala Limited

Gulshan

Dhaka-1212

Subject:        Legal opinion regarding the queries as to disbursement of credit facilities through due process and subsequent repayment procedure vide operation of law.

Dear Sir,

We put in writing to you in furtherance of the meeting held at your office and subsequent letter/e-mail requesting our chamber for providing you with legal opinion as to the subject matter. We feel responsive to cite the matter upon which the opinion is sought.

Abridgment of the fact:

Bank Alfala Limited (hereinafter referred to as the Bank) is desirous to introduce several new credit facilities to its clients. However, launching of such new facilities is the first ever initiative of that kind by the Bank.  The basic principles on which Banking rest viz. security and profitability is the most important concern in disbursing any credit facilities. New psychology in banking has raised. Similarly new device has also been turn out in the mind of the borrower to evade the repayment of the loan he has availed. The concept of security is already been tempered and intermingled with faith in the borrowers ability and capacity, and the soundness of the project bank intends to patronize. Nevertheless, it is the sole criteria of banking to anticipate the recovery process of the currency it is going to invest.  Therefore, the Bank is wiling to attend all the legal route of how the facilities can be disbursed as well as to know the recovery process of the loan, if necessary, by court of law. Hence, the opinion is.

Cogent view of the subject matter:

Since the financial Institutions provide investment or loan facility in the form of secured and unsecured categories, we organize the whole opinion by referring these two categories.

1. 1.    Secured form of investment or loan facility and the necessary course of actions:

When any Bank or Financial Institutions provide loan or investment facility to its client the Bank always take security (in the form of mortgage) against such loan or investment facility in order to secure its money. It should always taken in to mind that secured loan or facility is made on the security of the tangible assets, market value of which is not any time less than the amount of the loan to be advanced.  But sometime because of the knavery act of the client such security bears no means. Method of preventing such act and secure the investment or loan facility of the Bank  as well as realization of Bank’s investment or loan facility can be opined in the following manner:

 

1.1          Pre-disbursement precaution methods in case of secured advance or credit facility

          A Bank company may disburse its investment facility either on taking security or without security. In case of disbursing investment facility with security the Bank may often take immoveable property in the form of a mortgage. At the time of giving and taking mortgage the question may arise regarding the authority of the person giving mortgage and genuineness of the deed upon which the Bank Company relay on and providing investment facility. In order to clear the befog over this situation our chamber for the first time in Bangladesh introduce a method through which you the Bank can able to justify the genuineness of the documents you relay upon and avoid any kinds of knavery. From the British colonial period, it has been observed that the land distribution system is a complicated process which has a direct attachment to transferability. A land has been transferred several times. Someone bought a landed property, and then sold it out to another and then he sold it to another and then he gifted the property to another, and then his inheritors got the property and this process is continuing and it will. In such a long journey of transferability the documents relating to a landed property often seems or found to be forged at the interest of a vested quarter.

On the other hand, such landed property is a major sector for the companies, banking institution, financial organization as because of they deal with that sort of immovable property for their respective reason. Someone uses the property as a security against the loan disbursed or someone takes the property as a focal point to invest by way of developing the land. Therefore, in most of the case it has been witnessed that some vested quarter has tried to forged documents, in one or other way, of the land in question. The companies like Developer one, or the Banking Institution which take the land as a security verily suffers injury when it transpires that the land that they have kept as security or that have been joined with investment, has in fact no legitimate connection to the person who claims it as his own property. Therefore, the companies suffer irreparable loss and injury. Such ill intention is oftenly practiced.

It will not be out of place to mention here that our chamber has introduced a “Search Team” to probe whether the documents referred to the Banks or Companies regarding a landed property is genuine or fake. Be the first to say that we are not the absolute authority to declare documents genuine or fake. But we do suggest our client to the effect that the documents referred to suffer some unusual infirmity which cast doubt in our mind as to the genuineness of the documents and ultimately ownership of the property. Then, it is the Bank or the concerned company to decide whether they would consider this property as their security or a medium of their investment.

Our Search Team (Shortly, ST) is experienced with manpower who has practical knowledge of doing such work for longer than 7 years. The paramount task for the Search Team is to crept in to:

(i)   Sub-Registry Office,

(ii)   Office of the Assistant Commissioner of Land, and

(iii)    Tahshil Office.

While our ST starts it mission from the office of the Sub-Registrar, they looked into the Title Deed which primafacily shows the ownership of the present owner(s). The ST directly inspects the Balam Book on submission of fees payable to the Government. They heed in to the Signature, Stamp Papers, and name of the parties to the Deed. Thereafter, they came to a conclusion as to the genuineness of the Title Deed.

At the second phase of the ST’s Job, the scrutinize in the Office of the Assistant Commissioner of land as to the genuineness of Namjari Parcha and other records like C.S Parcha, S.A Parcha, and R.S. Parcha. Therefore, a clear scenario appears to our chamber as to the ownership of the landed property in question.

The ST operates its function at last Stage in the Tahshil Office whereform it transpires that whether the Ground Rent has been paid by the present owner or up to which period the Ground Rent has been deposited. Moreover, ST also crept in to the matter of depositing Taxes as to the landed property in question.

After completion of aforesaid three toilsome stages, our team submits it report to the concerned lawyer dealing with the file and then he is responsible to furnish the report stating the detail procedure with his observation as to the genuineness of the documents relating to such land. Therefore, it is really a demanding services that we offer our client. In our practice life it is found that 2 sets of documents out of 10 sets are fake. Hence, our service has received huge welcome form the concerned group and sectors of the business society. Though some of other chambers are following our practice, we are always aware that our standard of service is unparallel and beyond any touch of interference. Moreover, we provide this service with affordability to the concerned client.

Our chamber has developed the ST to search not only the Free Hold property but also the properties under the Authority of RAJUK, Ministry of Housing & Works, and other authorities. Our search report will describe a true picture of the legacy of the documents as well as the history of the landed property.

 

 

 

1.2          Legal device/ mechanism to realize your investment facility etc

To safeguard the public money and for the purpose of quick realization of the public money, in contrast to the  usual method of instituting suit for recovery of money, the government of Bangladesh has been made several attempts. Among them the latest and foremost important is the Artha Rin Adalat Ain, 2003 (as amended).This is the Act through which government facilitates the financial institutions to realize its investment facility. Alone with this some criminal case can also be instituted under The Negotiable Instruments Act,1881 and The Code of Criminal Procedure,1898. For a comfortable look we seem it responsive to bring to light on the main distinctiveness of these Acts under the following sub-heading:

a)    Preamble of the Act[1]: The preamble of any Act describes for what purposes the legislatures have intended to formulate the Act. In the preamble of the Artha Rin Adalat Ain, 2003- the statute clearly state the purpose of its being existence. According to the preamble of this Act – this Act (means Artha Rin Adalat Ain, 2003) is formulated in order to facilitate the financial institutions to realize its loan or investment facility and remove the existence barriers regarding the realization of the loan or investment facility.

b)   Establishment of Separate court[2]:

For a quick disposal of the suit, this Act have empowered the government to establish, in a district,  as many Artha Rin courts as the government thinks fit providing exclusive jurisdiction to deal the suit brought by the financial institutions in connection to realization of the investment or loan amount. These courts have no other power but to deal with this suit. For this reason no suit can take much longer time for its disposal[3].

c) Power of the financial institutions to sell mortgage property without the intervention of the court in order to realize the investment or loan amount[4]:

This Act has given the financial institutions immense power to sell the mortgage property taken by as a security against the investment or loan amount. The Act impose a precondition upon the financial institutions that before filling any suit under this Act , the financial institution must  sell the property in their hands in the form of security against the investment or loan  facility in accordance with the provision of this Act. If the property which will be sold out by availing this said opportunity is in the hand of the opposite party and he is reluctant to hand over the same, the financial institutions have the opportunity to make an appeal to the District Magistrate regarding to take initiative for handing  over the possession of the property.

d) Liability of the Third party Guarantor or Mortgagor[5]:

At the time of providing investment or loan facility to any person or institution, the Bank or financial institution take personal guarantee from the principal borrower as well as any third party who make himself liable for the loan amount of the principal borrower. In certain cases third party also execute a mortgage deed on behalf of the principal borrower. The Artha Rin Adalat Rin, 2003, makes both the principal borrower and the third party guarantor or mortgagor jointly and separately liable for the investment or loan facility taken by the principal borrower. According to the provision of the Artha Rin Adalat Ain, 2003 – The financial Institution shall make those who have given third party guarantee or third party mortgagor as defendant and the judgment given by the court shall hold good against all including those who have given third party guarantee or mortgagor and the decree shall be prosecuted against all including third party guarantor or mortgagor.

Provided that the court shall at first attach the properties of the principal borrower and in the next that of the third party mortgagor and then the third party guarantor respectively as far as possible.

e) Provision relating to Time Limit for the disposal of the Suit:

The Artha Rin Adalat Ain, 2003 stipulate a very short period of time within which the court must dispose the suit brought before it. According the provision of this Act – if the defendant does not appear in the court after serving summons upon him , the suit shall be disposed within 30(thirty) days and if the defendant submits written statement, it shall be disposed of within maximum 90(Ninety) days from the date of submission of written argument. Provided that if the court is unable to dispose the suit within the stipulated 90 days, the court shall extend the period, by recording the reasons ,for a maximum period of 30 days[6]. For the purpose of instantaneous disposal of the suit this Act also lay down time stipulation upon the court within which it must pass a judgment. It states that – the court will pass a judgment within 10 days after completion of deposition of the witnesses. In the event of the court not fixing longer limit in the judgment for payment of decretal amount by installment, then the court will issue an order to the defendant for payment of decretal amount by fixing any time limit of a period not exceeding 60 days[7].

f) Provision relating to Exparte[8] Decree:

According to the provision of the Artha Rin Adalat Ain, 2003 – if the defendant remains absent in the court on any day fixed for hearing of the suit and in the event of non- appearance of the defendant on call after acceptance of the suit for hearing , then the court will dispose the suit exparte. In case of exparte decree in any suit, the defendant will be able from the date of such exparte decree or within 30 days from the date of his acknowledge about such exparte decree, subject to provision of subsection (3) file a prayer for cancellation of such exparte decree and in case of such prayer  the defendant will be required within 15 days of submitting such prayer to deposit an amount of money equivalent to 10% of the claim of the plaintiff in the concerned financial institution in case or as security Bank Draft, Pay Order or in the shape of any kind of encashable negotiable instrument in the court as admission thereof[9].

g) Provision relating to Appeal and Revision:

According the provision of Artha Rin Adalat Rin, 2003 the defendant is allowed to make an appeal before the High Court Division or the District Court against the decree of the Artha Rin Adalat subject to depositing an amount equivalent to 50% of the decretal amount[10].

The Appellate court will settle the matter within 90(ninety) days after acceptance of appeal and in case of failure to settle the case within 90 days the court by recording the reasons therefore in writing will extend such time limit up to not exceeding 30(thirty) days.

No court will entertain any prayer for revision by the defendant against the judgment and decree passed in appeal if the applicant does not submit with prayer in the court proof of such deposit of Taka 75% equivalent to the amount passed by the appeal court against[11].

The Higher court will within subsequent 60 days after acceptance of the revision, dispose it and in case of failure to dispose of the reason within 60 days, the court will after recording reasons in writing extend the said time limit upto a period not exceeding 30 days.

h) Draw Criminal Proceeding under Negotiable Instruments Act, 1881(as amended)

At the time of disbursing loan facility to the client, most of the Bank often takes Cheque/s as security. When the client become disinclined to repay the availed loan amount the Bank always take an initiative to realize the availed loan amount by  encashing the security cheque/s. But if the cheque returned unpaid due to insufficient fund or any other reasons the Bank have the option to file a criminal case against the client under section 138[12] of the Negotiable Instruments Act,1881(as amended).

So in order to construct a client liable it is judicious on the part of the Bank or financial institution to take cheque/s as security against the loan facility.

i) Criminal Proceeding under the Code of Criminal Procedure, 1898:

Whenever the client has made any criminal breach of trust[13] and cheating[14] in accordance with the provision of the Code of Criminal Procedure, 1898, it is evident that the motive of the borrower was to defect the interest of the Bank and in conjunction with cheating and breach the trust of the Bank, the Bank may take action by initiating criminal case under section 406[15] and section 420[16] of the Penal Code, 1860.

2. Unsecured form of Investment or loan facility:

The Banks or financial institutions often provide investment or loan facility such as Credit Card, Car Loan, etc without any security which comes within the perview of unsecured credit facilities. The distinction between secured and unsecured loan is made on the basis of legal title or charges created in favour of the banker.

Nevertheless, in a case of unsecured credit facility the traditional principal of lending depends on the basis of tangible assets in the posession of the borrower. Thus the larger of the creditworthiness of the borrower is projected, the degree of advancing unsecured loan climbs up. However, unsecured loan since given to person of sufficient means and high reputation followed b sound financial position, no charge or right is created on any such assets of the borrower in favour of the Bank. In such case the security happens to be the personal obligation of the borrower which is sometimes supported by a Guarantee or sometime personal guarantee of other person/third party of high financial position and reputation.

The business of sanctioning unsecured advances or credit facilities or loan is comparatively less practiced and more risky than that of secured one. Nevertheless, unsecured loan facilitates is also secured by virtue of Artha Rin Adalat, 2003- the only enactment only introduced for recovery of loan advanced by the (scheduled)Bank of Bangladesh to its borrowers.

The question may arise how this unsecured facility will be realized. For the quest of this question’s answer we have to look on the definition of loan inserted in the Artha Rin Adalat Ain, 2003. According to section 2(C) – Loan shall mean-

1. Advance, debt, cash loan, over draft, banking credit, discounted or purchased bill , money invested by financial institution according to Islamic Sharia or any financial interest or facilities by whatever name may it be known.

1. Guarantee, Indemnity, letter of credit or any other financial arrangement which any financial institution pays or executes or takes up as liability on behalf of any creditor.

It is further necessary to cite that Car Loan in some extent fall within the character of unsecured loan facility but the risk for recovery is minimized due to hypothecation over the car. Therefore, in turn it comes under the purview of indirect secured advance and may freely rely on the recovery process as enunciated in 1.2, except the proceeding of Negotiable Instrument, of this opinion.

When providing loan without security the Bank certainly take personal guarantee of the Borrower.  As the purpose of emerging Act, 2003 is to realize the loan amount, the Bank may take any of the procedure mentioned above as well as if there is no security in the form of mortgage or otherwise, the bank may make an application to attach the any other property of the default client or guarantor in accordance with the provision of Artha Rin Adalat Ain, 2003 in conjunction with the Code of Civil Procedure,1908 (the code responsible to regulate the suit of civil nature  ).

Thanking you for accolade our legal intellect.

Thanking you.

Yours truly,

_____________________                                                      _____________________

Md. Ashik Ferdous                                                              A.M. Masum

Advocate                                                                                 Bar-at-law, Advocate

Supreme Court of Bangladesh                                                               Supreme Court of Bangladesh

For: ‘The Lawyers & Jurists’                                                         For: ‘The Lawyers & Jurists’

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