Banker’s role in the legal process of recovering default loans
Banking is a highly competitive business where customers are at the core; and customer service and satisfaction are the prime differentiating tools to boost business and image. So a banker has to be prompt, efficient and accurate in rendering quality and secure customer service, but in compliance with all legal provisions as banking is top to bottom a law based profession.
It is also very true that bankers are not lawyers. But for ensuring compliance with legal provisions a banker also doesn't have the chance to consult with his bank's legal adviser before dealing with customers. So a banker has to have the proper banking knowledge as well as the legal knowhow that a typical lawyer is supposed to have.
For this, it is not essential for bankers to be a barrister at law, or an LLB or LLM degree holder. They also need not to be lawyers of certified lawyers. They just need to be watchful in dealing with customers and also have clear understanding in every document prepared by their lawyers as well as in other legal documents and instruments of their banks.
Because if a bank's legal adviser does any gross mistake or violation in any legal matter of a bank, all its troubles descend on the bank itself. Instances of holding bank's legal advisers responsible for their legal irresponsibility and wilful or unwillful mistakes and violations are rare. So a banker himself has to be involved and has the understanding in every legal matter of his bank.
In relation to law, there is a popular saying that, 'law runs at its own pace'. But in fact, tremendous follow-up and monitoring are required to keep it on the wheel. And, that must be assisted by the banker in parallel to his legal adviser.
Every bank has a good number of enlisted learned legal advisers. Bank's legal matters are dealt with by them. Yet no legal matter of a bank is left alone on its legal advisers. Together with the bank's legal adviser, bankers also have to remain cognizant of and compliant with banking laws, rules and regulations. Because it's the banker who is ultimately held liable for any damages caused by any legal loss or failure arising from any banking operation.
As a result, like any other banking activities, bankers have to deal and be compliant with law in case of lending also. In fact, a banker experiences most legal matters in case of lending and particularly when there is a need for recovery by legal recourse. Sometimes a bank may be in a disadvantageous position with regard to recovery of a loan because of its legal faults or noncompliance. When repayment is okay, bankers might be spared for major legal faults or noncompliance; but when repayment is not coming, minor faults and noncompliance turn into major cause to non-recovery. So it's must for a banker to be legally compliant while sanctioning, disbursing and even recovering a loan, especially when a bank sues defaulters for recovery of bad loans.
Suit is the ultimate but undesired fate of a loan as the tool of recovery. Actually it is the 'last bullet to shoot' as a remedy of the last resort in the recovery fight with the defaulter, when all efforts of the banker such as personal contact, request, moral persuasion and notice etc for repayment turn worthless.
Many bankers elapse time by unnecessarily dilly-dallying in filing suits. When a banker experiences prolonged non-payment from the borrower and also sees no willingness and kind efforts of the borrower and co-obligors rendering the loan into a grievous default/classification status, he should initiate legal procedures obtaining prior approval from the competent higher authority of the bank.
Before filing money suit, banker has to attempt to sell the mortgaged property, if any, through auction advertisements in widely circulated national and local newspapers as per section 12(3) of the Money Loan Court Act, 2003. A banker shouldn't go silent after inviting bidders through auction advertisement. Rather he should spread the advertisement among all potential bidders. He can publicize among potential bidders the upcoming sale of mortgage property by informal tools and techniques even before the auction takes place.
He can ask his existing big customers, resort to local developers or real estate companies, talk to industrialists, and pursue the local moneyed men to take part in the bid. If he thinks that bank's due will be recovered by partial sale of the mortgage properties, he can ask the borrower to search for potential buyers; and if any buyer is found, banker has to try to pursue the borrower and mortgagor to sell part of the mortgage properties through informal negotiations with the buyer. If none of the above measures work for recovering the bank dues, in that event filing suit is considered as an inevitable step and last recourse for recovery of bank's dues.
Banks' default loan recovery is majorly governed by the Money Loan Court Act, 2003. But bankers usually prefer to file CR (Complaint Registered) case for unsecured loans by dishonoring security cheques under the Section 138 (140 for companies) of the Negotiable Instruments Act, 1881. When a bank has mortgaged property as security against a loan, it then files Money Suit under the Money Loan Court Act, 2003. But in present days CR case under the Negotiable Instruments Act, 1881 has become the first choice of bankers as legal recourse for both secured and unsecured loans.
Banker initiates legal procedure through the legal adviser with due approval from higher authority. Branches should take care and precautions about filing suit within the stipulated time as specified in the Money Loan Court Act, 2003 so that no suit falls into time barred limitation. In this respect, branch manager should follow section 46 of the Money Loan Court Act, 2003. If it's CR case for cheque bounce, serving of notice and case filing must follow section 138 of the Negotiable Instruments Act, 1881. While filing money suit, banker must try to attach unencumbered properties of the borrower and co-obligants (mortgagors and guarantors) along with their encumbered mortgaged properties.
Though suit is the last recourse of recovering default loans, filing of a suit in the court against the defaulting client does not give relief to a banker from his responsibility of recovering the default loan. Proper monitoring of the suits has to be ensured for early settlement so that decree of the suit comes in favour of the bank. After filing of suit banker must appear before the court on each hearing date, and quickest disposal shall be arranged through the conducting lawyer through constant liaison with him.
At the same time, ensuring appearance of bank's lawyer before the court on each hearing date is very important since lawyer may have other general suits under trial in other courts. Quick serving of summons on the defendants shall be arranged through the lawyer. A certified copy of the plaint (arji) has to be obtained immediately after filing for record of the bank and onward submission and intimation to higher authority.
If arrest warrant is issued by the court, it's quickest despatch from the court to SP office to GRO office to Police Station must be pursued by the banker. When the arrest warrant reaches Police Station, officials of the Police Station are to be pursued for arresting the defendants. Banker should be in regular contact with the lawyer for upcoming hearing dates and purpose thereof. Maintaining a due date diary of all the suits and their next hearing dates and purpose of hearings can assist the banker in this respect.
When the suit is decreed in favour of the bank, steps shall be taken to serve the decree by the court and obtain a certified copy of the decree immediately. Branch shall ensure that the borrower/judgment debtor in terms of the decree pays the dues; and in case of default execution case shall be filed without any delay.
We can now conclude that, it is harder to make a legal adviser flawless in his responsibility to a bank and also to make liable for legal failure in recovering thousand crores of taka involving in a number of default loans in exchange for professional fee of a few thousand taka only. A bank is the institution of its bankers, who are appointed and paid premium salaries for making business for banks by lending and recovering the same with profit. So it is bankers' prime concern-- whom to lend, how much to lend and how to recover.
Many money loan suits remain pending in the court year after year and can't be disposed of because of judicial obstacles as well as for lack of proper follow-up by the bankers. If the banker doesn't resort to the court in time following due process and if he doesn't stick to and stay untired in settling suits through supervision and follow-up, it's his bank which will lose crores of taka or find it unproductive, costly and stuck-up for an unknown period of time and with an unsure fate.
The writer is principal officer & head of branch, National Bank Limited, Pakundia Branch, Kishoreganj