RE: LEGAL OPINION ON LEGAL DOCUMENTATION FOR PERSONAL LOAN AGAINST TERMINAL BENEFITS.
We refer to your letter dated 27 August 2006 on the above subject.
From your letter it appears that Bank 1 (“BANK 1”) wants to set up a Personal Loan facility for Company 1 (“COMPANY 1”) staffs (“Borrower”) against their Terminal Benefits. To this extent you have provided us with a draft copy of a letter by the Borrower authorising COMPANY 1 to deposit the Borrower’s salary and his terminal benefits into a bank account held by the Borrower with BANK 1 (“bank account”). You have also provided us with a draft Letter of Undertaking by COMPANY 1, whereby COMPANY 1 undertakes to deposit the Borrower’s salary and his terminal benefits into the bank account. From this bank account, after deduction of all dues to COMPANY 1, BANK 1 would be entitled to realise any outstanding loan in the Borrower’s name.
After considering the authorisation letter and the letter of undertaking in light of the relevant law our legal opinion is as follows:
There is no legal issue with regard to COMPANY 1 depositing the Borrower’s monthly salary into the bank account so that BANK 1 can realise Tk. 14,480.00 per month from the account.
But in relation to COMPANY 1 depositing the Borrower’s terminal benefits into the bank account there are a number of legal issues. These issues are given below:
COMPANY 1 can deposit the Borrower’s terminal benefits, after deduction of all dues to COMPANY 1, into the bank account in the event of the Borrower’s retirement, resignation, dismissal or termination of service and BANK 1 can realise the outstanding loan in the Borrower’s name from this source.
But in the event of the Borrower’s death, the Borrower’s Authorisation Letter will be revoked. After death, although COMPANY 1 can deduct from the terminal benefits lying with it all of its dues but in view of the authorisation being revoked it cannot be compelled to deposit the residue with BANK 1. The heirs will be first claim. Therefore, the security as envisaged will have flaw After death BANK 1 may not have access to the terminal benefits in the hands of COMPANY 1.
Besides, it is our suggestion that BANK 1 should also find out from COMPANY 1 the following 2 issues:
a) In the event that, COMPANY 1 dismisses the Borrower, will the Borrower still be entitled to his/her Gratuity payment?
b) If COMPANY 1 dismisses the Borrower, will the Borrower be entitled to the full Provident Fund or will COMPANY 1 deduct from the Provident Fund the amount contributed by COMPANY 1?
It is our opinion that the letter of authorisation and the letter of undertaking should be rewritten accordingly.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”