DRT Solutions - Mini Articles i.e.Letters to Editor

THIS refers to the news item 'Willful bank defaults rise four-fold; amount soars to Rs 4,600 cr' (Nov 9). The Reserve Bank list is prepared on the basis of the sole version of financial institutions and banks. The RBI does not make any inquiry, neither does it countercheck their version with the version of the borrowers.

It is a well-known fact that the public sector lending institutions and banks are duty bound to obey statutory RBI guidelines issued since 1976. In many cases, there are open and willful violations of these guidelines by the banks and FIs. Further, while there is no 'no fault' insurance of borrowers, the institutions and banks have multiple safeguards and securities (such as support from the government, mortgages, collaterals, personal guarantees, institutional credit guarantees, margins etc). This is against all principles of equity, justice and good conscience. Most security documents are one sided and hence are liable to be held illegal ab initio even if signed.

Under the law of torts, the institutions and banks are bound to discharge their duty of care if there is any prejudice to the rights of the borrowers under the particular facts, circumstances and consequences. The legally sound borrowers have full rights to resort to these defences combined with counterclaims

That is why the institutions, banks, RBI as well as debt recovery tribunals are inherently more inclined towards settlements rather than legal battles. Ultimately the bureaucracy in the FIs and banks will have to act responsibly and display accountability combined with financial acumen. It must be recognized that production, productivity and utilization of resources are better modes of recovery than the coercive legal route which may\ boomerang on them.'

(19) The following our Mini Article was published in The Financial Express dated 13.11.01 page-6 in the column 'Letters to the Editor'

THIS refers to 'The system encourages businesses to turn sick' (Nov 8). The system comprises of, and is operated by the concerned people. The permit-license raj and the neta-babu nexus only enhanced corruption by creating more hurdles. We now desire to transform the system from being 'bureaucracy-centric' to 'business-centric'. If we want businesses to face market forces, the bureaucracy will have to be honest, law abiding and responsible. The moment the bureaucracy is transformed, the said nexus will break down. The second pre-requisite is an introduction of no-fault insurance as in developed countries. Finally, we need efficient and independent judicial machinery, whereby the corrupt and irresponsible businessmen can be weeded out.

(20) The following our Mini Article was published in The Financial Express dated 20.11.01 page-6 in the column 'Letters to the Editor'

THIS refers to 'Settlement scheme for loan defaulters to cards' (Nov 13). The first phase of the One Time Settlement scheme for bigger borrowers is nearly over and hence the government has turned its attention to smaller borrowers. But the recoveries will be peanuts compared with those arising from bigger borrowers. Bank recoveries have virtually reached a stand-still now. This is the right time to pay attention to the law of insurance and law of damages. All businesses face risks. Insurance companies should introduce plans for business failures and 'no fault' insurance. Project appraisers should insist on such provisions. The Reserve Bank should caution banks and financial institutions about the imposition of damages for breach of statutory RBI guidelines. If such essential conditions are not created, entrepreneurs will not be attracted to new business propositions.

(21) The following our Mini Article was published in The Financial Express dated 23.11.01 page-6 in the column 'Letters to the Editor'

THIS refers to the articles 'Making money in the great game of social advancement' (Nov 19) and 'Primitive accumulation versus the rule of law' (Nov 20). While we were being ruled by the Mughals and British, the progressive societies were making advancements in the fields of law, science and industry. When we encountered a democratic framework, it was entirely new to our culture. With a servile anti-establishment mindset and a Nehruvian socialist direction, the new ruler — the neta — took birth and the babu conspired with him for mutual benefit. Now globalization has broken their nexus.

Only recourse to fundamentals will provide permanent solutions to all our problems. This lesson may be learnt from the experiences of mature democracies and developed societies.

The modern democratic framework is based on rule of common law which starts with a certain standard of conduct to be adhered to by all citizens. Any violation of such conduct is regarded as injury and everybody becomes fearful of committing wrongful acts.

As a result, corruption comes down, productivity rises and more wealth is generated. This is why US per capita Income is 200 times more than ours. In the US, the bribe giver is awarded four times more punishment than the taker. In China, the corrupt guilty are shot dead. In Sweden, one can freely check the income-tax returns of one's neighbour, whether he is a minister, collector or Judge. Ultimately, it is the supremacy of rule of law with a free application of the law of torts which will check the unbridled citizens.

(22) The following our Mini Article was published in The Financial Express dated 01.12.01 page-6 in the column 'Letters to the Editor'

THIS refers to news item 'Jalan promises further steps for revival' (Nov 30). While our approach to solving problems is bureaucracy- centric, the need is for a business-oriented approach. If we have a plethora of problems, so do other nations like China but they have quickly transformed and aligned themselves with a modern way of thinking. Those who are in the driver's seat i.e. politicians and bureaucrats have first to reform themselves. Then only can meaningful courses of future action be devised and implemented. Having said that, since this could not be achieved in half a century since independence, it is unlikely that it would happen now. The only course left for the sufferers is to drive the so- called drivers to face penalties and be accountable. Public servants must be made to think, act and behave like public servants. And the collective consciousness of citizens has to be awakened.

(23) The following our Mini Article was published in The Financial Express dated 05.12.01 page-6 in the column 'Letters to the Editor'

THIS refers to the news Item 'Jaitley for change in legal framework' (Dee 4). It Is heartening to note that the government desires to reduce the life of a civil case to one year. In reality, the processing time of a civil case depends on the conduct of the officers of the court, that is judges and advocates. In the Indian context, the standard of this conduct is quite poor. To boost the same, Mr Jaitley's colleagues will have to first reform their own conduct. Before joining Parliament, they take an oath to abide by the Constitution. But their performance over the past 50 years has been proved to be unsatisfactory. Unless our politicians and their accomplished bureaucrats set an example by abiding by the rule of the law, the officers of the court are neither expected nor compelled to reform their conduct as laid down by public servants.

(24) The following our Mini Article was published in The Financial Express dated 19.12.01 page-6 in the column 'Letters to the Editor'

India must draw lessons from China the way it tackled its non- performing assets. The Chinese started work on the manufacturing sector way back in 1979 and now they have distinct lead over India. With their determined implementation and integrated approach, they would successfully tackle the problem of accumulated non- performing assets. We have been talking about the need for setting up an Asset Reconstruction and Asset Management Company for the past several years but due to irresponsible and unaccountable national management, the implementation has been most tardy. While we cannot copy the Chinese methods, the democratic setup in India can achieve such results only when our leaders seriously consider reforming their conduct and consciousness. Under the present circumstances, the only method is large scale application of the Law of Torts which is the most acclaimed tool for reformation of conduct has been proven by developed nations.

(25) The following our Mini Article was published in The Financial Express dated 20.12.01 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'Bye, bye fiscal deficit target; 1991 calling' (Dee 19).The impact of national mismanagement is now appearing in several spheres such as poor internal security, unbridled corruption, uncontrollable industrial sickness and non performing assets, growing unemployment, etc. The warning bells sounded by the report of Morgan Stanley should be an eye opener but the present national leadership as usual will hardly pay any serious attention to it. The country is being driven to a state of intense painful survival for everybody, whether they be small investors, big business or large industrial houses.

(26) The following our Mini Article was published in The Financial Express dated 26.12.01 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'Bankers meet today to discuss slew of legal reforms (Dee 24). A plethora of legal reforms are long overdue m the banking sector. It is heartening to note that legal and operational officers representing public, private, foreign and cooperative banks will dwell upon the said legal reforms and the proposals and recommendations will be sent to the Reserve Bank and the centre. But the RBI has been emphasizing several important aspects of industrial and financial legal provisions in its various statutory guidelines, and the same have not been implemented fully despite it issuing numerous warnings. This is because well- defined penalty clauses do not exist in the banking sector. It is high time that the said banking laws are drafted in such a manner that they are based on principles of equity, justice and good conscience and have sufficiently effective penal provisions for wrong doers.

This is the opportunity to usher in the ever felt absence of responsibility and accountability. This is the basic frame work on which the effectiveness of implementation depends, It is high time that we Incorporate the basic tenants of the law of torts in the proposed banking laws so that the requisite standard of conduct is realized by the borrowers as well as the lenders. This will be a test for RBI and the centre if they are really keen for quicker industrialization with least possible non-performing assets.

(27) The following our Mini Article was published in The Financial Express dated 29.12.01 page-6 in the column 'Letters to the Editor'

THIS refers to the editorial 'Justice delayed is...' (Dee 26) and the news item in the same issue 'Watch ethics not bottom line'. The Civil Procedure Code 1908 Is a most litigated enactment, the useful provisions of which have been highly misused by defence lawyers In trial courts. This can only be prevented by competent, vigilant, and trained judges. There is an acute need for extensive training .of judges, reduction in their work load, quicker introduction, off information technology and better emoluments. Conduct based upon the law of torts will regulate clients, advocates as well as the judges. Such is the first step in the democratic setup to control the undesirable behaviour of corrupt politicians and bureaucrats on account of whom one-sided contracts are entered into and resultant but infructuous litigations are fought. There is no other way to create a productive and prosperous environment for coming generations. The side-effects would be fewer, faster and quality litigations providing solutions and directions for complex problems of modern industrial society.

(28) The following our Mini Article was published in The Financial Express dated 03.01.02 page-6 in the column 'Letters to the Editor'

THIS has reference to the news Item 'SBI to go solo in corporate finance' (Dee 31). The decision of the State Bank of India is a reflection of ground realities. Even consortium banking, which was a forerunner to multiple banking, has been an utter failure in spite of the apex bank. Despite several statutory Reserve Bank guidelines, public sector banks never bothered to abide by them as the RBl never imposed any penalty. The consequences have been huge numbers of litigations, counter-suits and counter-claims. The matter will have to be decided by the judiciary.

Basically, consortium or multiple banking results in divided responsibility or nobody's responsibility. Under these circumstances and given past results, SBI's decision needs to be welcomed by corporates. It is also expected that other banks will follow suit. The RBI may amend guidelines suitably.

(29) The following our Mini Article was published in The Financial Express dated 10.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the CEO survey carried in the analysis titled 'Seeing light, steering for recovery' (Jan 7). While everybody is impatiently desirous of quick initiatives and action, we should be equally serious about laying down the proper foundations which would make for effective implementation of our decisions. The feedback from outside observers is that India is bureaucracy-centric as opposed to being business oriented. The old British model continues, though Britain itself has reformed, but we have neither done the same nor have wanted to. In the near future, further postponement will be vehemently resented. It Is time we introduced the law of torts which alone would reform the mindset of irresponsible and unaccountable bureaucrats and politicians.

(30) The following our Mini Article was published in The Financial Express dated 11.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news items 'China's success is cumulative effort of 50 years, say experts' and 'India needs more manufacturing focus' (Jan 8). China's Continuous and sustained efforts has resulted in a per capita income of $ 1,000 dollars as compared with India's 450 dollars. This should be an eye-opener for the leaders and policy makers in our country. If we have a serious thinking and a plan for the next 50 years, the foremost item which should need everybody's attention is reform in our conduct which should result in requisite pattern of responsibility and accountability.

The laws should be such that citizens including bureaucrats, politicians and businessmen should be afraid of damages if they cause any injury or wrong doings to others. This is the first step for any democratic framework. If we have not done it during the past 54 years, we should do so now and see the results in the next 50 years. There is no other approach as may be proved by the developed economies like the US and Europe. In that eventuality, there will be logical attention to manufacturing which alone sparks numerous activities for explosive generation of internal resources as in China.

(31) The following our Mini Article was published in The Financial Express dated 17.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news Item 'RBI says economy has lost speed, but not halted' (Jan 15). Our emphasis, particularly over the last five years, has been more on recovery of bank overdues, control of non-performing assets and expeditious proceedings In the Bureau of Industrial and Financial Reconstruction and debt recovery tribunals. Creation, promotion and development of industries has been accorded a back seat. The results are obvious.

While new entrepreneurs are scared of setting up new Industrial units, existing entrepreneurs are having a tough time saving their skins from the bureaucracy. It is well known that the manufacturing industry is the prime engine of growth of a modern economy, and the entrepreneur its heart and soul. We not only lack in physical infrastructure but also emotional support and encouragement to entrepreneurs.

A fillip to manufacturing can be attained only if the managers of the country, ie the politicians and bureaucrats, transform their conduct. We need to usher in responsibility/accountability and the law of Insurance for risk coverage. Such reforms have to be first applied to the above managers and then to the public. This is the only route for nation building in modern times. Till the desired standard of conduct is achieved, the general public will continue to suffer. The financially strong citizens will apply pressure through the court of law as may be seen from the explosive growth of Industrial litigations, counter-suits and counter-claims. In the meantime, global competition will pressure us to implement the final stage of reforms. Perhaps our democratic setup with the present leadership cannot do better than this.

(32) The following our Mini Article was published in The Financial Express dated 21.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the article 'Telecom: The success story of reforms' (Jan 17). It is well understood by everybody that most of the productive activities of the country are suffering due to huge delays in implementation of banking reforms. The public and the industrial community in particular should cite the example of the success of telecom reforms by which tremendous benefits have accrued to the consumers in cost, efficiency and quality of services. Nationalized banks should be privatized quickly on the same lines. Side by side serious attention should be paid to reform the conduct of politicians, bureaucrats and businessmen. The bench mark should be the International Corruption Index according to which India presently occupies 71st position among 91 nations. Voters should give this agenda the highest priority.

(33) The following our Mini Article was published in The Financial Express dated 22.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'Respect for rules only can improve corporate governance' (Jan 20). The former Chief Justice of India and chairman of the Centre for Corporate Governance Mr M N Venkatchaliah has timely pronounced that fear of violation of norms can alone improve the corporate governance and he called upon the legal community to create such an atmosphere.

This is perfectly true also for the governance of the country whose managers are the politicians and the bureaucrats. All this boils down to reform of the conduct with the tool of fear operating through legal provisions combined with criminal law to be applied widely First on the top echelons of society i.e. politicians, bureaucrats and businessmen. The test for implementation should be the extent to which our corruption index of 71 among 91 nations can be brought down. A time-bound programme and achievement can alone convince the voters about the true law abiding conduct of the politicians. Then only they deserve to be called as public servants in our democratic set up and the improvement in the per capita income would be the yardstick to measure their duties for which they have all got together to up their emoluments and perks tremendously. .They must practice first among themselves as well as among the bureaucrats they control, before they preach the innocent citizens.

(34) The following our Mini Article was published in The Financial Express dated 24.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'SBI staff plan stir over unpaid bills' (Jan 22). Non-payment of overtime bills for the past one year by the biggest bank of the country is a sign of gross mismanagement and poor corporate governance. Recently, the foreign branch of this bank had to pay a penalty of Rs 36 crore, which was levied upon it because it had failed to ~ observe prescribed systems and procedures. In our country no such penalty has ever been imposed by the regulator and prescribed statutory RBI guidelines have been openly violated since 1976, despite the issuance of repeated warnings. As a result, the bank is facing several counter-damage suits and counter-claims from borrowers and guarantors in courts. As per the 2001 survey 2001 of India's best banks published by The Financial Express in December 2001, SBI's rank in 2000- 01 has worsened from 30th to 41st as compared with the previous year. Moreover, the decision to go in for a VRS must have been arrived at after considering all factors by the management and the staff. Hence it cannot be cited as the reason for enhanced workload.

The performance of SBI and other nationalized banks actually reflects the performance of our bureaucracy. It is high time these banks are privatized without further delay so that the government's equity is brought down below 26 per cent and their boards are reconstituted with professionals. In that eventuality not only will their performance and service improve, but the employees will also give up their agitations (which inconvenience the public) and put in their best.

(35) The following our Mini Article was published in The Financial Express dated 28.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news items 'DRTs to hold Lok Adalat for bad loans settlement on Jan 20,'and 'Vittal proposes probity Index for banks wary of corruption tag' (Jan 17). While the settlement route undertaken via the establishment of debt recovery tribunals is appreciated, the sums realized are peanuts compared with the non-performing assets. A thorough study of the judgments delivered by the DRTs reveals that on account of absence of 'no fault' insurance and scanty application of common law for arriving at the cost of irresponsible and unaccountable conduct, the problems faced by entrepreneurs are not receiving proper judicial attention resulting in incomplete decisions.

The resort to provisions of counter-claims and set-offs consequent to last year's amendment of the DRT Act will somewhat address such problems, but the judicial route is time-consuming and expensive as the case may travel back and forth from the DRTs to the Supreme Court via appellate DRTs and high courts. Since our standard of conduct is wanting, not much should be expected from the DRT litigations.

On the other hand, recent attempts to coerce recoveries have created a scare among the entrepreneurs and they are shying away from setting up new units or expanding existing units. As a result there is virtually no growth in manufacturing capacity, and in certain sectors there is a serious reduction. Clearly, there is need for an overhaul of the judicial process.

(36) The following our Mini Article was published in The Financial Express dated 30.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'Norms on rehabilitating sick SSIs revised’ (Jan 25). The Reserve Bank of India has been issuing its guidelines on industrial sickness since 1976. There have, been rampant violations of these statutory guidelines by 'the nationalized banks since then, despite the RBI issuing periodic reminders and warnings of punitive actions.

Since no strict action is initiated against them, banks feel that they are free to take any arbitrary or unconstitutional decision. They do not even bother about judicial actions as the process is highly time consuming, cumbersome and expensive. Moreover, the SSIs are not financially capable to contest the legal counter-actions. Further, in our country there is no no-fault insurance. On the other hand, the bank. .bureaucracy has devised multiple safeguards for Itself such as mortgage, guarantees, margins, DICGC guarantees and now the recompense clause.

The RBI lays down various time limits for viability studies and rehabilitation but in practice the bankers never follow these time limits because the guidelines do not have any penalty clause in case of Violations. Under these circumstances, the bank officials have become arrogant and careless in dealing with the problems of sick units.

(37) The following our Mini Article was published in The Financial Express dated 31.01.02 page-6 in the column 'Letters to the Editor'

THIS refers to the article India Inc looks at public issues again' (Jan 28). Modern management as a science took birth and grew to prominence in the last century. It was nurtured and shaped by the great organizations like General Motors in the beginning and General Electric recently. The ethical values were and will continue to be the foundation of good management or governance.

It is time the corporate governance in new born democracies like ours be paid attention by the biggest stake owner, that is the public. The public as their creator to the form of the voter can truly set the agenda for proper governance in the country.

(38) The following our Mini Article was published in The Financial Express dated 02.02.02 page-6 in the column 'Letters to the Editor'

(39) The following our Mini Article was published in The Financial Express dated 16.02.02 page-6 in the column 'Letters to the Editor'

THIS refers to the news item 'Remove the fetters that hold back entrepreneurs' (Feb 14). The observation of Ms Indira Nooyi is a reiteration of how the modern world looks at the Indian attitude towards enterprise.

Our society does not like the growth of superior mind. It does not believe in supporting entrepreneurship. On account of numerous horror stories of unending struggle, entrepreneurs prefer to call it quits. Those who cannot are here much against their wishes.

The managers of the country ie the politicians and the bureaucrats are not bothered about our extremly poor share in the world trade, or the very low per capita income.

The widening gap with the developed world and for that matter, even with the Asian tigers has not had much impact on our national consciousness.

We have to wait for a new leadership to stir our society for national advancement. Let's hope the utterances of the likes of Ms Nooyi may have some effect on the politicians in power.

(40) The following our Mini Article was published in The Financial Express dated 19.02.02 page-6 in the column 'Letters to the Editor'

This refers to news items 'SBI chief calls for level playing field for PSBs' and 'Officers to join bank strike'(Feb 16). Privatisation is the real remedy for improving the performance of public sector. These banks suffer from governmental bureaucracy. The public has tasted the benefits of privatisation in the case of the telecom sector as a result of which the quality, service, cost and spread have all improved. The Indian telecom sector is now poised to grow locally as well as globally.

The SBI chief and the PSB officers should not forget the fine of Rs. 36 crores imposed by the US federal authorities for violation of prescribed procedures. On the other hand the RBI has not taken any tangible or punitive action against the PSBs since 1976 for continuous violations of statutory RBI guidelines except issuing repeated annual warnings of serious actis. The public is now impatient for privatisation.

(41) The following our Mini Article was published in The Financial Express dated 27.02.02 page-6 in the column 'Letters to the Editor'

This refers to the news item 'Sops For Small Scale Sector Likely In Budget' (Feb 25). This sector is in dire need of timely and adequate credit from banks and financial institutions. Since relatively small funds are advanced to this sector, these are dealt with by the branch managers. The Reserve Bank of India, has, since 1976, repeatedly warned banks to pay attention to the credit problems of the SSI sector aptly called 'priority sector' but the bank babus neither abide by the statutory RBI guidelines nor pay any attention to the woes of the small scale industry.

It is high time that representatives from SSI associations visit China, Italy, United States etc, prepare a report to be made public, and ensure its implementation in a transparent and honest manner.

The existing process of formation of RBI committees headed by the RBI or bank officials needs to be reformed so that the final implementation is business centric rather than bureaucracy centric.

All other sops in areas such as taxation or rationalisation of norms would not have material effect till such time the credit delivery problems are solved. After that the government has to put in place globally competitive infrastructure so that the SSIs become appropriate feeders to the large manufacturing sector.

(42) The following our Mini Article was published in The Financial Express dated 15.03.02 page-6 in the column 'Letters to the Editor'

(43) The following our Mini Article was published in The Financial Express dated 19.03.02 page-6 in the column 'Letters to the Editor'

Law Of Torts

This refers to the news item 'IBA Defers Inclusion Of Arbitration Clause In Loan Documents' (March 16)

It is reported that the Indian Banks Association has deferred the incorporation of an arbitration clause in bank loan documents because it is of the view that the incorporation of such a clause is neither feasible nor cost effective.

A senior IBA official carries a notion that the DRT Act does not permit any arbitration clause with the documents.in respect of loan amounts of Rs. 10 lakhs and above. Further he is of the view that it will not be cost effective in respect of loan amount below Rs. 10 lakhs. His contention is that for this purpose amendment of DRT Act is required.

The view and contentions of the IBA are misconceived. The DRT Act and for that matter any other legislation under our constitution does not preclude the principles of justice, equity and good conscience. Inclusion of arbitration clause in the loan documents is covered by such principles and specific provision or amendment of the DRT Act is not needed.

The Bank of India has acted rightly by already deciding to include the said arbitration clause in their loan documents. The IBA official is further mistaken to hold the view regarding loan amount below Rs. 10 lakhs. The DRT Act applies to loan amounts of Rs. 1 lakh and above.

The present trial of cases of Rs. 10 lakhs and above is regulated by the notification issued by the Ministry of Finance. When the infrastructure of the DRTs is properly established, the limit would be successively be brought down to Rs. one lakh.

The dire need of the hour is wide scale understanding, recognition and application of common law like law of torts to inculcate the attitude of responsibility and accountability in the mental state of bank bureaucracy so that proper appraisal is carried out and once the loan is sanctioned the project is fully supported in thick and thin situations.

Bankers acting only as fair weather friends and leaving the assisted unit in lurch during odd times particularly when the finances are urgently needed, would amount to violations under the law of torts resulting into counter-claims due to consequent injury, loss and damages.

Ram Kishan

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