DRT Solutions Weekly Mail – 350^th Issue dated 23^rd January ’15

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(1) Praiseworthy Initiative by Mumbai Advocate Mr. Nilesh Ojha for Judicial Reforms

Mumbai Advocate Mr. Nilesh C. Ojha ( M- 0 93734 18181 ) is relentlessly after Judicial Reforms. He is the National President & Founder, Human Rights Security Council (HRSC). His book “How to get Justice against Wrong Judgments and Police Attrocities” has been found to be immensely informative and helpful to the readers. He organized many road shows to mobilize public support.  His recent campaign has been quite impressive. The video clip of the said  campaign may be seen at YouTube vide link http://www.youtube.com/watch?v=a4KwvBpRwZI We must support Advocate Mr. Nilesh Ojha by spreading widely information about his work, book and the said video at YouTube.

(2) Projects Worth Rs 4 lakh Crore stuck in Litigation

 ti

The following news item is self explanatory:-

40 projects stuck in litigation, stalling investment of Rs. 4 lakh crore: ASSOCHAM

http://www.merinews.com/article/40-projects-stuck-in-litigation-stalling-investment-of-rs-4-lakh-crore-assocham/15903577.shtml&cp

Alka Sirohi 18^th January 19, 2015

Making out a strong case for commercial court in every high court and special benches for high value litigations, industry body ASSOCHAM today said 40 projects worth over Rs. 4 lakhs crores are stuck in litigation process in different courts and tribunals.

An ASSOCHAM paper on 'Reforms in Indian Legal System,' contended that delays   in timely disposal of high value cases  aretaking a huge toll on the country's GDP and prompting some foreign Commercial Courts assuming jurisdiction in  disputes even where no cause of action arose in those countries. 

Further, the contention of the foreign courts in assuming jurisdiction in commercial disputes even where no cause of action arose in those countries is dilatory processes in India where disputes linger on for years together causing economic losses to the parties in the dispute and policy uncertainty among investors. 
 
While the Indian judiciary is respected the world over for independent judicial processes, there are concerns over long delays in disposal of cases. As per latest statistics collected by ASSOCHAM,  Supreme Court has 63,843 cases pending as on 1st May, 2014, High Courts have 44,62,705 cases pending and the Lower Courts have 2,68,38,861 cases pending as of December 2013. 
 
To speed up the resolution of commercial disputes, the ASSOCHAM has suggested various measures including creation of better infrastructure, filling up of vacancies of Judges and clarity in regard to the role of appellate tribunals. Since the IPR regime is gaining importance and has caught the attention of the global investors, there should be special benches for IPR cases. 
 
Besides ad-hoc arbitration be stopped completely and the Arbitration Act should be amended and the system of arbitration should be made more credible and effective. Also there should be an international standard Arbitration centre in Delhi on the lines of New York / London / Singapore.
 
The ASSOCHAM paper suggested a clear National litigation Policy responsibility should be fixed for frivolous litigation.
 
The Supreme Court of India in consultation with the government should come out with a policy under which Trial Courts are asked that  the cases -  civil or criminal, which are pending under the Trial Courts for more than 20 years be closed. 
 
Similarly, the apex court should issue instruction that litigations under arbitration must be finished maximum within one year and in case of any delay the arbitration cases must be subject to scrutiny by the relevant High Court or Supreme Court beyond one year.

- See more at: http://www.merinews.com/article/40-projects-stuck-in-litigation-stalling-investment-of-rs-4-lakh-crore-assocham/15903577.shtml#sthash.Iz5ITKbp.dpuf

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Weekly Mails and DVDs are DRT Legal Guide and gold mine of practical information for the borrowers and guarantors - The mail recipient particularly Borrowers and Guarantors will be immensely benefited by our weekly mails and DVDs, all previous issues of weekly mails from 1st one till the last one may be viewed by clicking the links given at the top. Separate web pages have been created to contain these mails in batches of 10 so that pages open up fast. These mails are gold mine of information on current topics giving lot of practical suggestions and comments. Any new recipient to these mails must go through all the weekly mails right from the issue no 1 to the latest. If possible please spread the reference of our web site and the weekly mail among the persons, borrowers and guarantors who are the bank victims. If anyone desires to get these mails regularly, he may write to us for inclusion of his e-mail ID in the regular mailing list. The weekly mail is issued on every Friday. The particular issue of the weekly mail is first published on the web site and then mailed to borrowers, guarantors and their advocates in the country. This service is free in the best interest of society in general and litigant borrowers and guarantors in particular. We are getting huge no of mails appreciating our weekly mails.  We welcome suggestions.

DRT Solutions Weekly Mail – 349^th Issue dated 16^th January ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Banking Reforms & India’s Competitiveness 

The following news article is self explanatory:-

Banking sector reforms and India's competitiveness

http://www.newkerala.com/news/2015/fullnews-4958.html

Pre-1991, India had nationalized banks in two phases in 1969 and 1980. It meant that public sector banks (PSBs) controlled the credit supply. The post-1991 period can be thought of in three distinct chronological phases. The first one was roughly from 1991 to 1998. The second started from 1998 and continued until the beginning of global financial crisis. The third we believe is an ongoing process.

Post-1991 saw structural reforms in the financial sector (banking, capital markets and development finance institutions) based on the recommendations of the Narasimham Committee report of November 1991. Within the banking system, significant issues had arisen - namely a small capital base, overall fragile health, low profitability and less competition in the banking sector as a whole.

Measures to strengthen the capital base included capital infusion by the government of approximately Rs.20,000 Crore. In addition, public sector banks were allowed to approach the capital markets for infusion of equity capital subject to the condition that government ownership would remain at least at 51 percent.

Measures to improve the fragile health and low profitability included adhering to internationally acceptable prudential norms, asset classification and provisioning and capital adequacy. Several measures were also initiated, the prominent being the enactment of The Recovery of Debts Due to Banks and Financial Institutions Act in 1993. Following this, 29 debt recovery tribunals (DRTs) and five debt recovery appellate tribunals (DRATs) were established at a number of places in the country. 

Apart from this, Lok Adalats were increasingly used for settling disputes between banks and small borrowers. Also, credit data started to be shared between banks for guarding against defaulters. Also, NPAs were clearly defined - based on objective criteria in four heath codes from the earlier eight. The new health codes resulted in approximately one-fourth of the total advances made being declared as NPAs. 

All these measures reduced the percentage of NPAs to gross advances from 23.2 percent in March 1993 to 16 percent in March 1998. Further rationalization and deregulation of interest rates was also undertaken. The effective resolution of the NPA issue, combined with the deregulation of interest rates paved the way for greater competition and better profitability.

Simultaneously, to create competition within the banking sphere, several measures were undertaken. These included the opening of private sector banks, greater freedom to open branches and installation of ATMs, and a full operational freedom to banks to assess working capital requirements. 

The second phase of reforms started with another Narasimham Committee report in April 1998, which succeeded the East Asian Crisis. Post 1998, a need was felt to restructure debt as the DRTs process was painfully slow due to legal and other hurdles. Therefore, a need to felt to build asset reconstruction companies. The enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 enabled the sale of financial assets to securitisation/ reconstruction companies. 

Also, a Credit Information Bureau (India) Ltd (CIBIL) was established in 2000 that paved the way for the enactment of the Credit Information Act in May 2005, for credit information of borrowers. In accordance with this, gross NPAs as a percentage of total advances were brought down to 2.4 percent in 2008 from 12 percent in 2001.

Another feature of the second stage of reforms was the increasing competition between banks. Though 21 new banks (four in the private sector, one in the public sector and 16 foreign entities) entered, the overall scheduled commercial banks (SCB) reduced approximately four-fifths to 82 by 2007. Additionally, FDI in the banking sector was brought under the automatic route, and the limit in private sector banks was raised from 49 percent to 74 percent in 2004.

The third phase post the global financial crisis has again seen the NPAs steadily rising again. Data from the recently released Financial Stability Report of the RBI shows this increased to 4.5 per cent in September 2014. What is remarkable is that stressed advances (the NPA and Restructured Standard Advances) were at 12.9 percent of their total advances in September 2014 for PSBs in comparison to private sector banks at 4.4 percent.

Commenting on these developments Prime Minister Narendra Modi told a recent meeting of public sector bankers that he is against political interference but supports political intervention. Finance Minister Arun Jaitley similarly stressed the need to "deal with commercial issues with a commercial mindset". Reserve Bank of India Governor Raghuram Rajan similarly hailed the government's decision in letting the PSBs be without fear or favour and ignore extraneous considerations in their commercial operations.

While all these statements highlight a firm intent to help public sector banks regain their competitiveness, it is equally worthwhile to observe that our financial system in the past has had higher levels of stressed assets, particularly in phase I and in the early part of phase II. That does not mean we have to touch those levels again. Maybe another round of reforms for the banking sector will reduce them. In 2015, the single biggest question facing the banking sector in general and the PSBs in particular will be ensuring reduction in NPAs with greater financial inclusion. 

(The article is co-authored with Sankalp Sharma, Senior Researcher at the Institute for Competitiveness, India. is Chair, Institute for Competitiveness and Editor of Thinkers. The views expressed are personal. He can be reached atamit.kapoor@competitiveness.in and tweets @kautiliya. )

(2) Nehru & Patel curbed Freedom of Expression in India 

The following news item is self explanatory:-

Why Nehru and Sardar Patel curbed freedom of expression in India

Within a year of the Constitution coming into force, Parliament passed the First Amendment, placing ‘reasonable restrictions’ on free speech.

Shoaib Daniyal
Today · 06:45 am

The horrific attack on the office of Charlie Hebdo seems to have pitched India into a free speech maelstrom with some awkward, even depressing results. The day after the murders, HT Media’s business newspaper Mint published some of Charlie Hebdo’s cartoons as a defiant protest in favour of freedom of expression. Embarrassingly, only a few days later though, it put out a notice saying that it had “removed” the cartoons. The reason for this, Mint claimed, was that the cartoons had “offended some people”. More odiously, the state moved in as well: Mumbai’s police blocked purportedly offensive social media posts related to Charlie Hebdo.

Neither incident came as a surprise, of course: India has a glorious tradition of restricting free speech. In fact, so vital is this quality to the nation’s lifeblood that the very first amendment made to India’s newly minted constitution sought to restrict freedom of speech. In an ironic coincidence, the First Amendment to the US’s constitution prohibits any abridgment of free speech. Maybe a lot can be said about a country from only its first amendment.

On 26 January, 1950, our founding fathers awarded India a fine constitution which, among other things, guaranteed its citizens “the right to freedom of speech and expression”. Almost immediately though, they were to regret this over-generosity, as the judiciary started to limit executive action on the basis of freedom of expression.

Indian courts weighed in

In Bihar, a government order to restrict a violent political pamphlet was quashed by the Patna High Court. So liberal was India’s freedom of speech at the time that a judge on the case held that “if a person were to go on inciting murder or other cognisable offences either through the press or by word of mouth, he would be free to do so with impunity because he could claim freedom of speech and expression”. This is remarkably similar to the US Supreme Court’s 1969 ruling in the Brandenburg case, which held that the State cannot forbid advocacy of the use of force or of law violation unless the violence was intended, likely and imminent.

In Delhi, the government’s attempts at pre-censoring the Rashtriya Swayamsevak Sangh’s mouthpiece, the Organiser, met the same fate. The East Punjab Public Safety Act, 1950, under which the curbs were being applied, was held to be unconstitutional by the Supreme Court.

The third case (May 1950) turned out to be the most impactful and involved a left-leaning journal called Crossroads, published by Romesh Thapar from Mumbai. At the time, Madras state had banned the Communist Party and, as part of that policy, prohibited the entry and circulation of Crossroads in the state. Thapar contested this ban legally and won, with the Supreme Court declaring the Madras Maintenance of Public Safety Act, 1949 unconstitutional.

The Communist Party had, at the time, declared war on the new dominion with the slogan “Yeh azadi jhooti hai” (this freedom is fake) and in Telangana was directly battling the Indian army. Thapar, while not a card-carrying member of the party, was widely seen to be a communist sympathiser and, therefore, this decision by the Supreme Court greatly alarmed the administration.

Agreement on curbs

Within a week of the decision, Home Minister Vallabhbhai Patel wrote to Prime Minister Jawaharlal Nehru, complaining that this ruling “knocks the bottom out of most of our penal laws for the control and regulation of the press”. Patel also expressed concern that this meant that the government would be unable to gag Hindu Mahasabha leader S P Mookerjee, who was leading a troublesome campaign to get Bengal’s partition annulled (ironic, because just three years before, he was one of its biggest supporters).

Nehru and Patel did not often see eye to eye but on this matter there was perfect agreement within the duumvirate: both leaders believed in a strong, centralised state. In fact, not only Nehru and Patel, there was broad agreement on this matter throughout the government. BR Ambedkar, while less hawkish than either Nehru or Patel on the matter, still agreed on the need for curbs.

Events moved fast. By February 1951, Nehru had constituted the Cabinet Committee on Amendment to modify Article 19 (which contained the freedom of speech). Law Minister Ambedkar suggested that the phrase “reasonable restrictions” be added. Patel’s Home Ministry, unsatisfied by the qualifier “reasonable”, sought to have it removed. This qualifier left it up to the judiciary to decide what “reasonable” meant, curtailing the powers of the government.

Opposition from Hindu Mahasabha

Nehru came down on the side of the Home Ministry and the draft bill introduced in Parliament allowed the State to make laws imposing “restrictions” on freedom of speech and expression “in the interests of the security of the State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence”.

The opposition to this bill was fierce, spearheaded by S P Mookerjee. Restrictions on free speech in the interests of “friendly relations with foreign States” directly gagged his efforts to overturn partition and he was naturally indignant. “The Prime Minister believes that agitation to end partition is harmful to the country, but I think partition should be annulled. So why can we not each give our views and let the public decide,” argued Mookerjee in a forceful response to the bill.

In the face of this fierce opposition, the government backed down a bit. Nehru reintroduced the qualifier “reasonable”. The compromise in place, Parliament passed the bill 228 to 20.

Later on, in 1963, the Sixteenth Amendment would add another condition: “the sovereignty and integrity of India” aimed at curbing Tamil separatism. Till then Dravida Munnetra Kazhagam had the secession of south India as part of its agenda, which it then subsequently dropped.

Misuse of curbs

The can of worms this opened meant that modern India has lived with vaguely defined hate speech laws (Section 153A of the Indian Penal Code) and a blasphemy law (Section 295A of the Indian Penal Code). Faced with the diffused nature of the internet, the government passed Section 66A of the Information Technology Act, 2000 which even went so far as to penalise “offensive” electronic messages.

Backers of a limited right to expression usually argue that unrestricted free speech would cause law and order issues in India, much as the government did in 1951. The fact that India is a volatile country is not in doubt. Just six months back, a young Muslim man in Pune was murdered by a mob, incensed by derogatory images of Shivaji and Bal Thackeray (unlike in Paris, the murderers did not even bother to find out the source of the image).

Like a number of other statist solutions, however, curbs on free speech in the service of public order looks far better on paper than on the ground. As we have seen in Mumbai in 1993 or in Gujarat in 2002, the state does not really seek to clamp down on free speech for such altruistic purposes. Instead, free speech curbs are used for petty political ends, banning books, movies, paintings and even Facebook status updates.

In spite of the widespread and frequent curbs on free speech, this is really not a political issue in India and there exists remarkable political consensus on their continuation. So deep is the rot that in most cases – from Penguin to Mint – people now simply censor themselves, which really is the best curb on freedom of expression anyone could wish for.

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DRT Solutions Weekly Mail – 348^th Issue dated 9^th January ’15

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(1) Kingfisher shows Why India needs Strong Debt Recovery Laws 

The following news item is self explanatory:-

Kingfisher case shows why India needs strong debt recovery laws

The Calcutta High Court's judgement on Kingfisher's wilful defaulter tag highlights the difficulties faced by banks in recovering unpaid loans

Somasroy Chakraborty  |  Kolkata  

December 30, 2014

http://www.business-standard.com/article/opinion/kingfisher-case-shows-why-india-needs-strong-debt-recovery-laws-114123000077_1.html

All it took was an extra committee member to dent United Bank of India's (UBI) efforts to recover unpaid dues from Kingfisher Airlines.

The state-run lender has been meticulously building its case against the grounded airline for more than two years now. UBI was the first (and still the only) bank to declare Kingfisher, its chairman Vijay Mallya, and three other directors as wilful defaulters, a tag that effectively prevents them from getting access to institutional finance in future.

Last week, however, the Calcutta High Court dismissed UBI's action against Kingfisher. The court observed that UBI's identification committee on wilful defaulters was comprised of four members, which was one more than prescribed in regulation 3(i) of the Reserve Bank of India's (RBI) master circular on wilful defaulters. 

"In such circumstances the decision arrived at by such identification committee is a nullity. Consequently, all steps taken by United Bank of India subsequent to such so-called identification are also a nullity," Justice Debangsu Basak said in his judgement on December 24, 2014.

UBI is perhaps at fault for deviating slightly from the prescribed regulation, but many felt that the bank actually took more care in declaring Kingfisher a wilful defaulter by having an extra member in its wilful defaulter committees. It is also argued that RBI's master circular on wilful defaulter does not use the word "only" while specifying the number of committee members.

While UBI is allowed to reinitiate the process of identification and declaration of Kingfisher a wilful defaulter, there is no doubt that there will be further delays in recovering the dues. Sometimes, if not always, justice delayed is justice denied.

This case is certainly not a stray incident. There have been instances in the past when errant borrowers have successfully stonewalled lenders' legitimate recovery efforts.

A performance review of debt recovery tribunals (created to help lenders recover dues speedily without being subject to the lengthy procedures of usual civil courts) offers insight to the current state of affairs. 

The amount recovered from cases decided in 2013-14 under debt recovery tribunals was only 13% of the amount at stake. While the law indicates that cases before debt recovery tribunals must be disposed of in six months, only about a fourth of the cases pending at the beginning of the year were cleared during the year.

However, not everyone blames the judicial system for coming in the way of banks in recovering what they have lent. Experts suggest that legislation needs to be amended to empower banks and the regulator and laws must be introduced to reduce the incidence of contesting every move of lenders in the court.

Till that happens a large chunk of bank loans may continue to remain unpaid.

(2) RBI Guidelines - Non-cooperative Borrowers – Another News Item 

Another news item on this subject is reproduced below:-

Reserve Bank of India tightens norms for errant borrowers

By: fe Bureau | Mumbai | December 23, 2014 1:32 am

http://www.financialexpress.com/article/industry/companies/reserve-bank-of-india-tightens-norms-for-errant-borrowers/22198/

Even as bankers struggle to recover dues from errant borrowers, grappling with an inefficient legal system, the Reserve Bank of India (RBI) on Monday put out a set of revised guidelines on how lenders should deal with ‘non-cooperative’ borrowers.

The modified definition of non-cooperative borrower, it would appear, is a lot similar to that of a ‘wilful defaulter’.The RBI has characterised a non-cooperative borrower as one “who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed and collateral securities, obstructing sale of securities”.

“In effect, a non-cooperative is a defaulter who deliberately stonewalls the efforts of lenders to recover their dues,” the central bank said on Monday, asking lenders to put in place a transparent mechanism for classifying borrowers as such.

The threshold exposure, per bank, for declaring a company as non-cooperative has been set at R5 crore.

The central bank continues to allow lenders to take on fresh exposure to non-cooperative borrowers but at the cost of making higher provisions. Higher provisions are also required to be made against fresh loans given to even those companies managed by the any directors of the non-cooperative borrowing company.

“However, for the purpose of asset classification and income recognition, the new loans would be treated as standard assets,” the RBI said. The central bank bars lenders from taking on fresh exposure to wilful defaulters, bankers point out.

Earlier, in September, governor Raghuram Rajan had observed that non-cooperative borrowers were those that resisted repaying at every corner, holding up the process. “From a prudential perspective, they impose a cost to the system because banks cannot get their money using the existing laws such as Sarfaesi,” Rajan said.

Rajan has pointed out that the amounts “banks recover from defaulted debt is both meagre and long-delayed”. In FY14, Rs 30,590 crore was recovered via debt recovery tribunals while the outstanding value of debt sought to be recovered was Rs 2.36 lakh crore. Worse, Rajan added that while the law stipulates that cases before the DRT have to be disposed of in six months, only a fourth of cases meet this criteria, “suggesting a four-year wait even if the tribunals focus only on old cases”. According to RBI data, loans worth more than Rs 2 lakh crore were pending at 33 DRTs till FY14, up from Rs 1.43 lakh crore in FY13.

K Subramanyam, executive director at Union Bank of India, pointed out that the non-cooperative borrower would be like a precursor to a wilful defaulter tag. “The wilful defaulter provision would be simultaneously used as these are two different types of borrowers,” Subramanyam explained.

By imposing the higher provisions, the central banks is discouraging banks from taking on additional exposure to errant borrowers, analysts said. Bankers have pointed out that the some borrowers delay the legal proceedings by continuously appealing for stays in the tribunals.

Banker’s efforts to recover dues from errant borrowers have been stymied by the courts. In September, the Gujarat High court had deemed the RBI’s wilful default guidelines as “unconstitutional” and had asked the RBI to modify the same. The court said the circular was in violation of the RBI Act or the Banking Regulations Act, 1949. “The circular that confers uncanalised, unbridled and untrammelled power upon the banks to decide the future of any borrower and makes the bank a judge in its own cause and also the decision whether the other banks should lend money to the borrower declared as a wilful defaulter,” the court had said in its judgement. Following the court order, Rajan said that the central bank would alter the definition of a wilful defaulter to accommodate the concerns of the court.

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DRT Solutions Weekly Mail – 347^th Issue dated 2^nd January ’15 - Camp Falna, Rajasthan

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) HC Calcutta says Kingfisher not a Wilful Defaulter

The following news item is self explanatory:-

Kingfisher not a wilful defaulter, says HC

Calcutta HC dismisses United Bank of India's decision on technical grounds

Somasroy Chakraborty & Raghuvir Badrinath  |  Kolkata/Bengaluru  

December 27, 2014

This New Yesar, UB Group chief Vijay Mallya has a reason to celebrate. The Calcutta High Court has dismissed United Bank of India (UBI)’s decision to declare his grounded Kingfisher Airlines a wilful defaulter.

The Kolkata-based lender had identified and declared the airline company, its chairman Mallya, and three former directors — Subhash R Gupte, Ravi Nedungadi and Anil Kumar Ganguly — wilful defaulters for non-payment of loans of about Rs 400 crore.

“The decisions of the identification committee (of UBI) and the grievance redressal committee are quashed,” judge Debangsu Basak said in the order.

“The ruling was in favour of Kingfisher on technical grounds. The Calcutta High Court said the grievance redressal committee (which decides on whether or not a borrower is declared a wilful defaulter) was not constituted according to regulatory guidelines. Therefore, the committee’s decision to declare Kingfisher a wilful defaulter was defeated... Our legal team is exploring all options and we might move the division bench against this order,” said a senior UBI executive, on condition of anonymity.

Kingfisher Airlines’ parent, UB Holdings, also confirmed the development. “The previous order (on declaring Kingfisher a wilful defaulter) has been set aside. But the bank can still appeal against this judgment,” said a senior UB Group executive.

“The identification committee held a meeting on May 22, 2014, to identify constituents as wilful defaulters. It was constituted by four members — one executive chairman, a chief general manager and two general managers. This is in excess of the number of three personnel prescribed in regulation 3(i) of the master circular on wilful defaulters, issued by the Reserve Bank of India (RBI). In such circumstances, the decision arrived at by the identification committee is a nullity. Consequently, all steps taken by United Bank of India subsequent to such so-called identification are also a nullity. Significantly, the grievance redressal committee also comprised four members. This is also in violation of regulation 3(iii) of the master circular issued by RBI,” the court order said.

According to the master circular, a decision on whether or not to classify a borrower as a wilful defaulter should be entrusted to an identification committee (a panel of higher functionaries, headed by the executive director and comprising two general managers or deputy general managers, as decided by the bank’s board). It added if a borrower was identified as a wilful defaulter, she/he should be provided reasonable time (say, 15 days) for making a representation against the decision to the grievance redressal committee, headed by the chairman and comprising two other senior officials.

Bankers said the high court’s decision would hit their efforts to recover loans from Kingfisher. The airline company has unpaid loans of about Rs 6,500 crore, borrowed from a consortium of 17 banks.

A few lenders, including largest State Bank of India, have identified the airline as a wilful defaulter, though they are yet to declare this.

Analysts have been saying amendments in laws are needed to empower lenders to recover money from defaulting borrowers. “I don’t think it (the delay in classifying a borrower as a wilful defaulter) is a problem with our judiciary. The problem is with the Banking Regulation Act and the RBI Act. These need to be amended to empower both banks and the regulator. It will reduce the incidence of referring such cases to courts,” Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, had told Business Standard earlier this month.

TURN OF EVENTS

May

·         UBI slaps wilful-defaulter notice to Kingfisher, its chief Vijay Mallya and other board members

July

·         Kingfisher moves Calcutta High Court against the UBI notice

September

·         UBI becomes first bank to declare Kingfisher, Vijay Mallya and three other board members as wilful defaulters

·         Kingfisher secures stay from Calcutta High Court on UBI’s decision

December

·         Calcutta High Court rules in favour on Kingfisher, dismisses UBI’s decision on technical grounds

(2) Banks may Tighten Noose on Defaulters

The following news item is self explanatory:-

Banks may tighten noose on defaulters; proposed changes will allow lenders to attach properties, once a case is filed

Friday, 26 December 2014 - 7:45am IST | Place: Mumbai | Agency: dna

http://www.dnaindia.com/money/report-banks-may-tighten-noose-on-defaulters-2047020

The great Indian bank loot may be coming to an end. It may soon be difficult fordefaulters like Vijay Mallya, Zoom Developers and others to run for judicial when a bank comes calling for recovery.

Defaulters may soon see their properties attached the moment a bank files a suit with the Debt recovery Tribunal (DRT), and a stay from the court may not be coming, if the finance ministry agrees to a bunch of suggestions from the bankers.

The other major request by banks is to ease the regulation for legal heirs to take over in cases the borrower dies when the recovery process is on. Legal heir substitution is a major hurdle in many recovery cases. Easing the law will make it easier for legal heirs to take charge of both the properties company and also any liability that the company may have with the banks.

What's happening now?
Right now, when a bank initiates recovery process, borrowers take shelter under various courts of law by getting a stay. A senior officer with a public sector bank said, "The legal process is such that cases never get resolved and banks are forced to clean up their balance-sheet by writing off loans. It will be a big drag on our profitability".

So, what are banks planning?
Banks have asked the finance ministry to make necessary changes in legislation so that "stays" from courts or those granted by the tribunal are conditional or time-bound or both. Banks, under the aegis of the Indian Banks' Association (IBA), have asked the finance ministry to make changes in the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002,and the Debt Recovery Tribunal.

What will the new law mean?
The new law will allow banks to attach a defaulter's properties and other securities, once a lender files a case with the tribunal. MV Tanksale, CEO, IBA, told DNA: "For a speedier recovery mechanism, we have asked the finance ministry to tighten the SARFAESI and the DRT laws, so that judicial interventions are limited and banks can undertake the recovery process without interruptions."

How much loans have been written off?
Public sector banks have written off loans worth Rs 1,06,170 crore in the last five years, minister of state for finance Jayant Sinha told the Rajya Sabha on Tuesday. Sinha also said that 1,600 cases of wilful defaults have been filed with debt recovery tribunals in the last three years up to March 2014. There are 50,000 cases pending with DRTs and still counting. Thousands of crores are locked up in litigations.

How many defaulters are there?
All India Bank Employees Union, in June, released a list of 406 loan defaulters who together owed over Rs 70,000 crore to the banking system and are facing legal action. Banks are also grappling with bad loans of over Rs 2 lakh crore and stressed assets of almost an equal number. 

DRT Solutions Weekly Mail – 346^th Issue dated 26^th December ’14

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) RBI Guidelines - Non-cooperative Borrowers

Mr Himanshu Mehta, one of our clients from Mumbai has sent the following news item which is self explanatory:-
 

India Infoline News Service | Mumbai | December 22, 2014 14:16 IST 

A non-cooperative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed / collateral securities, obstructing sale of securities, etc.

RBI has modifies definition of non-cooperative borrowers.

A non-cooperative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed / collateral securities, obstructing sale of securities, etc. In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate efforts of the lenders to recover their dues.

In this connection, we advise that banks/FIs should take the following measures in classifying/declassifying a borrower as non-cooperative borrower and reporting information on such borrowers to Central Repository of Information on Large Credits (CRILC):

The cut off limit for classifying borrowers as non-cooperative would be those borrowers having aggregate fund-based and non-fund based facilities of Rs.50 million from the concerned bank/FI. A non-cooperative borrower in case of a company will include, besides the company, its promoters and directors (excluding independent directors and directors nominated by the Government and the lending institutions). In case of business enterprises (other than companies), non-cooperative borrowers would include persons who are in-charge and responsible for the management of the affairs of the business enterprise.

It would be imperative on the part of the banks / FIs to put in place a transparent mechanism for classifying borrowers as non-cooperative. A solitary or isolated instance should not be the basis for such classification. The decision to classify the borrower as non-cooperative borrower should be entrusted to a Committee of higher functionaries headed by an Executive Director and consisting of two other senior officers of the rank of General Managers/ Deputy General Managers as decided by the Board of the concerned bank/FI.

If the Committee concludes that the borrower is non-cooperative, it shall issue a Show Cause Notice to the concerned borrower (and the promoter/whole-time directors in case of companies) and call for his submission and after considering his submission issue an order recording the borrower to be non-cooperative and the reasons for the same. An opportunity should be given to the borrower for a personal hearing if the Committee feels such an opportunity is necessary.

The order of the Committee should be reviewed by another Committee headed by the Chairman / CEO and MD and consisting, in addition, of two independent directors of the Bank/FI and the order shall become final only after it is confirmed by the said Review Committee.

Banks/FIs will be required to report information on their non-cooperative borrowers to CRILC under CRILC-Main (Quarterly Submission) return as advised vide circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 on ‘Reporting to Central Repository of Information on Large Credits (CRILC)’. As mentioned in this circular, the quarterly CRILC Main report is required to be submitted within 21 days from the close of the relevant quarter.

Boards of banks/FIs should review on a half-yearly basis the status of non-cooperative borrowers for deciding whether their names can be declassified as evidenced by their return to credit discipline and cooperative dealings. Removal of names from the list of non-cooperative borrowers should be separately reported under CRILC with adequate reasoning/rationale for such removal.

If any particular entity as mentioned in (a) above is reported as non-cooperative, any fresh exposure to such a borrower will by implication entail greater risk necessitating higher provisioning. Banks/FIs will therefore be required to make higher provisioning as applicable to substandard assets in respect of new loans sanctioned to such borrowers as also new loans sanctioned to any other company that has on its board of directors any of the whole time directors/promoters of a non-cooperative borrowing company or any firm in which such a non-cooperative borrower is in charge of management of the affairs. However, for the purpose of asset classification and income recognition, the new loans would be treated as standard assets. This supersedes the instructions contained at paragraph 8.1(b) of the aforementioned circular dated February 26, 2014.

It is reiterated that as the CRILC data is collected under the provisions of the RBI Act, non-adherence to reporting instructions attracts penal provisions under the Act.

(2) Supreme Court clamps down on ‘Bench Hunting’

The following news item is self explanatory:-

Supreme Court clamps down on 'bench hunting'

http://indiatoday.intoday.in/story/supreme-court-bench-hunting-forum-shopping-favourable-order-bail-applications-lawyer-dushyant-dave/1/407912.html

The Supreme Court has strongly decried the increasing corrupt practice, mostly in lower courts of litigants assisted by their lawyers indulging in "bench hunting" or "forum shopping" that is managing to get their cases heard by a particular judge and ensuring a favourable order.

The apex court said it was seen that the trend "which will eventually shake people's confidence in the Indian justice system" was mostly adopted before filing bail applications or other urgent petitions to secure quick relief. The subject had made national headlines in March 24 this year when senior lawyer Dushyant Dave, now the Supreme Court Bar Association President, trooped into the courtroom of the then Chief Justice R.M. Lodha and said "bench hunting" was rampant in the apex court too, forcing the CJI to initiate a probe.

Laying down firm guidelines (see box) to deal with the menace, the apex court said if a petition filed by a person comes before a particular judge entrusted with the task of hearing bails and he/she dismisses it, all subsequent bail pleas by same petitioner should also come before the same judge unless his roster has been changed, is on long leave, has been transferred or has retired. The petition can at no cost be heard by a second judge when the original judge is available, said the bench. 

A bench headed by Justice Dipak Misra said: "Unless such principle in consonance with judicial decorum, discipline and propriety is adhered to, there is enormous possibility of "forum shopping" which has no sanction in law and definitely, has no sanctity. If the same is allowed to prevail, it is likely to usher in anarchy, whim and caprice and in the ultimate eventuate shake the faith in the adjudicating system."

The court was hearing a petition filed by two accused in a cheating case involving ` 1.5 crore challenging a Delhi High Court order cancelling their anticipatory bail granted by a sessions judge on the ground that they had indulged in "bench hunting" in the Saket District Court.

The court said: "We find that the high court was disturbed that their second application, after the first one was rejected by the judge competent to hear it, was allowed by another judge who was not authorised to hear it."

The apex court said when the first judge declined to grant the bail application, the second judge should have asked the petitioner to approach the same judge rather than deciding on it. Justice Misra also slammed the prosecution saying it was its duty to bring it to the notice of the second judge that such an application was rejected earlier by a different judge and he was available.

The SC said: "If successive bail applications on the same subject are permitted to be disposed of by different judges, there would be conflicting orders and a litigant would be pestering every judge till he gets an order to his liking, resulting in the credibility of the court and there would be wastage of courts' time. Judicial discipline requires that such matters must be placed before the same judge, if he is available."

DRT Solutions Weekly Mail – 345^th Issue dated 19^th December ’14

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) DRTs – More Pain for Banks 

The following news item is self explanatory:-

Debt recovery tribunals: More pain than gains for banks

Experts suggest that the law should be strengthened to ensure mandatory time bound disposal of cases

Somasroy Chakraborty  |  Kolkata  

December 17, 2014 Last Updated at 00:48 IST

http://www.business-standard.com/article/finance/debt-recovery-tribunals-more-pains-than-gains-for-banks-114121600139_1.html

The functioning of debt recovery tribunals (DRTs), created to help financial institutions recover dues speedily without being subjected to the lengthy procedures of usual civil courts, appears to cause more pain than gain for banks.

Consider this: The amount recovered from cases decided in 2013-14 under DRTs was Rs 30,950 crore, while the outstanding value of debt sought to be recovered was Rs 2,36,600 crore. In other words, recovery was only 13 per cent of the amount at stake. Also, while the law indicates that cases before DRTs must be disposed off in six months, only about a fourth of the cases pending at the beginning of the year were disposed during the year.

“The functioning of DRTs needs to improve to ensure banksare able to recover their existing loans and offer fresh advances at cheaper rates... In the current scheme of things, there is no mechanism in place to ensure that the tribunal disposes the case in a timely manner. There is a strong need to bring in more accountability for the DRT,” said Shashwat Sharma, partner (management consulting), KPMG in India.

One problem is the small number of DRTs and Debt Recovery Appellate Tribunals, where judgments of DRTs can be appealed. While there are 33 DRTs, there are only five Debt Recovery Appellate Tribunals in the country. “There is certainly a need for more number of DRTs. The biggest challenge, it appears, is their ability to deal with a subject with speed. The system that was designed is clearly not working. Probably, there should be a feedback mechanism and people involved with DRTs should be encouraged to point out the areas of pain,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.

Deepak Haria, senior director at Deloitte in India, echoed a similar view. “The challenge is that our judicial system is both clogged and inadequate in infrastructure, which slows down any redressal. Recovery can be speeded up only when there is a fixed time-frame for all disposals, and realisation of assets could be speeded up by having special courts to deal with such recoveries,” he said.

A consequence of this is credit cost increases even for borrowers who repay loans on time. For instance, banks now demand a credit-risk premium of close to six per cent from power companies to compensate for the risk of default. The average interest rate on loans to these companies is close to 14 per cent.

The functioning of DRTs is also keeping the Reserve Bank of India (RBI) worried. “If bankers cannot get their money back, they are not going to give you loans at cheap price. So, making sure debt recovery tribunals work better, making sure that you don’t have excess number of stays, excess number of appeals – that is what we need to focus on,” RBI governor Raghuram Rajan said earlier this month following the central bank's fifth bi-monthly monetary policy review.

Experts suggest that the law should be strengthened to ensure mandatory time-bound disposal of cases. Also, performance indicators of the adjudicating officer could be used to improve the efficiency of the system. A few recommended that stay petitions should be analysed before being accepted as there have been instances where advocates exploit the loopholes of the Act and plead for stays, leading to piling up of cases.

(2) Half of India’s 500 Top Companies in Debt Trouble Banks 

The following news item is self explanatory:-

Half of India’s 500 top companies in debt trouble

Hindustan Times  Mumbai, December 03, 2014

First Published: 23:36 IST(3/12/2014) | Last Updated: 01:20 IST(4/12/2014)

https://www.google.com/url?rct=j&sa=t&url=http://www.hindustantimes.com/business-news/half-of-india-s-500-top-cos-in-debt-trouble-need-rs-7-lakh-cr-to-recover/article1-1292987.aspx&ct=ga&cd=CAEYAioSNzE2MTAwNzE5MDgyNzc2NDI5Mhw2NTdkNGZjNmQ5Y2U2NzRmOmNvLmluOmVuOklO&usg=AFQjCNG3YWf78R-dazJXi-2qWlYTY6qkVQ

More than Rs. 7 lakh crore would be needed as equity infusion to correct the debt-high balance sheets of at least half of India’s 500 top corporate borrowers, posing a stiff challenge to the regulators, who have been debating on the methods to improve the financial position of Indian lenders.

According to a study by India Ratings and Research, such an equity investment would take three years to complete, while it would take more than double that time for stressed companies, which have been classified non-performing by banks. “At least 63 corporates in this stressed group may require minimum equity requirement of Rs2.4 lakh crore to barely survive or improve the likelihood of them continuing,” said Deep Mukherjee, senior director, India Ratings.

The study said that raising even a portion of the equity to correct the debt imbalance would be challenging as most of the 96 known stressed companies are close to being insolvent.

RBI governor Raghuram Rajan pitched the issue against defaulting promoters in a recent speech. “What I am warning against is the uneven sharing of risk... where promoters have a class of “super” equity, which retains all the upside in good times and very little of the downside in bad times, while public sector banks hold “junior” debt and get none of the fat returns in good times while absorbing much of the losses in bad times.”

The RBI has also pointed out that the Debts Recovery Tribunals, set up to help banks and financial institutions recover their dues, have under-performed. The amount recovered from cases in 2013-14 under DRTs was Rs. 30,590 crore, while the outstanding debt to be recovered was Rs. 236,600 crore.

DRT Solutions Weekly Mail – 344^th Issue dated 12^th December ’14

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(1) Company under Winding UP – Queries Regarding - DRT Proceedings & Counter-claim

Queries on the above topic and our replies are as under:-

Query -.When is a company actually wound up? Is it wound up as soon as the liquidator is appointed or the registrar of company affairs strikes the name from the list?

Our Comment –

(1) In case of voluntary winding up, the winding up commences at the time of passing of the resolution.

(2) In other cases, the winding up commences, the moment petition for winding up is presented before the Tribunal.

(3) After implementing all formalities as per law, the winding up will be complete when the Tribunal finally makes an order for dissolution of the company.

Query - When the company has been taken over by the liquidator, who can file the counter claim in DRT?

Our Comment – The liquidator can file the counter-claim in DRT

Query - Can one of the erstwhile directors (who is also the guarantor) file the counter claim in DRT against the financial institution?

Our Comment – He can file the counter-claim in DRT for the loss and damages suffered personally and specifically while acting as guarantor.

Query - What will happen to the counter claim filed by the erstwhile director and guarantor if the banks withdraws the claim against the guarantors?

Our Comment – The said counter-claim may continue if the claimant does not decide to withdraw.

Query - When the liquidation proceeding are on, and the case is also pending in DRT with counter claim, is it not the responsibility of the liquidator to takeup the same in DRT and fight out, more so the statement of affairs contains the details of counter claim?

Our Comment – Yes, it is the duty and responsibility of the liquidator  to file and contest the said counter-claim.

Query - Should not the liquidator inform the company court about the proceedings in DRT and not seek of the company court permission to auction the assets.

Our Comment – Yes, the liquidator has to inform the competent court about the proceedings in DRT and to obtain necessary orders pertaining to the auction, if any.

Query  - What are the duties of the liquidator and the role of the liquidator?

Our Comment – He shall conduct proceedings in the winding up of the Company and perform such duties in relation thereto as the Tribunal may specify in this behalf.

Query  - When the ex-parte order by the DRT has been set aside, is it not the responsibility of the liquidator to participate in DRT proceedings?

Our Comment – Yes, he shall have to participate.

(2) Govt to Set Up 6 DRTs 

The following news item is self explanatory:-

Govt to set up 6 Debt Recovery Tribunals

PTI | Dec 10, 2014, 11.06PM IST

http://timesofindia.indiatimes.com/business/india-business/Govt-to-set-up-6-Debt-Recovery-Tribunals/articleshow/45461405.cms

NEW DELHI: The government on Wednesday approved setting up of six new Debt Recovery Tribunals (DRTs) to expedite cases pertaining to bad loans. 

The Cabinet has cleared setting up DRTs in Chandigarh, Bengaluru, Ernakulam, Dehradun, Siliguri and Hyderabad, an official statement said. 

"A study conducted through Indian Banks Association (IBA) in consultation with all stakeholders, recommended rationalisation of jurisdiction of some DRTs and setting up of six more DRTs," it said. 

The number of cases pending with DRTs is over 50,000 and they are increasing, it said. 

In the Budget 2014-15 speech, finance minister Arun Jaitley had said that the rising non performing assets of public sector Banks is a matter of concern for the government. 

He had mentioned the six cities where DRTs would come up. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) was enacted to provide for the establishment of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) for expeditious adjudication and recovery of debts due to banks and financial institutions. 

After the enactment of the SARFAESI Act 2002, DRTs have got the Appellate jurisdiction.

DRT Solutions Weekly Mail – 343^rd Issue dated 5^th December ’14

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Arbitration – Untouched by Reforms  

The following article is self explanatory:-

Untouched by reforms

Arbitration awards are dragged into regular courts slowing down the legal process

M J Antony  

December 2, 2014 Last Updated at 21:48 IST

http://www.business-standard.com/article/opinion/m-j-antony-untouched-by-reforms-114120201302_1.html

Though arbitration is held out as a speedy and cheaper alternative disputes resolution mechanism, recent Supreme Court judgments have lamented that it has proved to be "highly expensive and time-consuming in this country" (Dolphin Drilling vs ONGC). It has even rued that "the way the proceedings are conducted and without exception challenged in the courts has made lawyers laugh and philosophers weep."(Gurunanak Foundation vs Rattan Singh).

Several vague provisions in the Arbitration and Conciliation Act, not to speak of the arcane terms in the bulky contracts, make this field a corporate lawyer's delight. The 1996 Act modelled on the United Nations Commission on International Trade Law or UNCITRAL has run deep into legal muddle as seen from recent judgments of the high courts and the Supreme Court. By drawing every little issue to the courts, arbitration has become another tier in civil litigation.

Last week, the Supreme Court delivered a typical judgment in which the dispute started around 1995, the award was delivered in 2005, the first challenge before the single judge of the Delhi High Court was decided in 2006 and the appeal before the same court was decided in 2012 (Associate Builders vs DDA). The journey is probably not over; there are two more last-mile leaps to correct errors, if any, committed by the judges before - a review petition and a "curative petition".

The Act limits appeals against arbitral awards in Section 34. However, that wordy provision has not deterred appeals and the Associated Builders judgment cites some 20 precedents on this question. An award can be challenged if it is against the "fundamental policy of Indian law or interest of India or contrary to justice and morality." These are elastic phrases that can be moulded into any shape in the hands of the judges in individual cases.

For instance, there is a lengthy discussion on what is "morality", a woolly idea, which is playing havoc outside the court. The Indian Contract Act also uses this word and it means only "sexual morality". In the context of arbitration law, the judgment clarified that morality would mean "the enforcement of an award, say, for specific performance of a contract involved in prostitution." The judges further clarified that the court would interfere with such awards "only if something shocks the court's conscience." A discussion on what is the "fundamental policy of India" and what is against the "interest of India" is as murky as the air in the Chief Justice's court (which was found to have four times more than the permitted levels of pollution last Friday).

Despite the bar on court interference, the Supreme Court hears and decides a score and more appeals in arbitration cases every year. The high courts have their own heavy dockets. Appointment of arbitrators, for instance, is the first contentious issue. In the recent Reliance KG gas price row, this process took nearly two years, with one long Supreme Court judgment hastily withdrawn because some facts were overlooked by the judges.

Then a question is often raised whether there is an arbitration clause at all in the contract. Even the best draftsmen are not free from errors, negligence or deliberate mystification. Another recurrent disagreement is over the jurisdiction of the arbitral tribunal. Other nettlesome issues that stall arbitration till the courts deliver the last word are: the conduct of the arbitrators, the governing law in international contracts and enforcement of foreign awards.

The Law Commission, in its 246th report on amendments to the existing law, has made several suggestions, including a fixed fee structure to beat the soaring cost of arbitration. The proposed schedule of model fee would be as impracticable as the little known one for Supreme Court lawyers. There are nearly a hundred proposals to improve the 1996 Act.

An earlier attempt to update the law on the basis of the 176th report failed since the amendments were passed by the Rajya Sabha in 2003, but the standing committee wanted to improve on the Bill, which ultimately lapsed. Another opportunity has come now to infuse faith into arbitration but the moot question is whether it would meet the same fate as its predecessor.

(2) Reforming the Legal and Judicial System in India  

The following report is useful and important:-

Reforming the Legal and

Judicial System in India”

Collective inputs from over 170,000 Indian Citizens in circle

“Transform India with Modi”

(Current State Issues, Root Causes and Proposed Solutions)

November 27, 2014

Legal and Judicial System in India

Background

Some of the laws made in the British era are still prevalent. People think that the legal

system of our country is for the riches only. A common man is scared to seek help from the

system as he is scared of the unknown. The 173,000+ strong “Transform India with

Narendra Modi” online community has come together to collectively identify the key issues, root causes and solutions for the Legal and Judicial System in India and the community

expects that the Government will work towards implementing the identified solutions.

Issues Identified:

1. The legal process is too long and Cases are dragged for years

2. In some cases, the accused is made to serve a sentence for months before the court

pronounces him ‘not-guilty’

3. Too many holidays for the court

4. A huge number of pending cases in the courts

5. There is a lot of corruption in the judiciary

6. Archaic laws which do not have any meaning now

7. Tremendous delays in delivery of justice due to a lethargic judicial system

8. The legal proceedings turn out to be very costly today

9. A lot of unhealthy tactics used by lawyers to delay cases

10. Loop holes are easily found in our existing legal system which is used by lawyers

11. Shortage of judges

12. Gram Adalat and Lok Adalat do not have enough powers

13. The legal curriculum is outdated

14. There is no limit to the adjournment of the cases

15. Most of the time, strict punishment is not given for grave crimes

16. Management of documents is not efficient

17. Filing an FIR is a difficult process

18. General public is afraid to go to the police

Root Causes Identified:

1. Over-burdened lower Judiciary

2. Non-implementation of judicial reforms

3. Lack of technological interventions in the process

4. Unavailability of alternative dispute redressal mechanism

5. Lack of proper infrastructure

6. No legal frame work for time bound justice deliverability

7. A large number of pending cases are against the Government itself

8. Large number of obsolete laws

9. Lower conviction rate due to non-professional investigation and prosecution

10. Computerisation of the system hasn’t been done fully yet

11. The reputation of the police department is not good in the eyes of general public

12. Police doesn’t want to file FIRs because then they become accountable

13. Lack of awareness about the judicial system among people

14. Law breakers are allowed to become politicians and they influence judiciary later

15. No limitation to the number of cases taken up per day in lower courts

16. The law is many a times misused by guardians of law

17. A lot of times the judiciary does not have sector expertise related to the cases which

hampers/ delays the verdict

18. The accused always has the option of appealing in the higher court

19. Low literacy rate doesn’t allow a lot of people to understand the judicial system

20. Laws are very complex

21. Corrupt nexus between lawyers and judiciary in the lower courts

22. Delay in filing well prepared charge sheet in courts by Police

Solutions Identified:

1. More courts should be opened and more judges appointed

2. There should be defined rules for conduct of Judges

3. Adjournments for flimsy and false reasons should be punishable....both for the

Judges and Lawyers

4. Information technology should be used to ease the processes and bring

transparency/reduce corruption

5. The case files should be all computerised

6. All court proceedings should be video recorded

7. Filing of online FIRs should be implemented

8. More authority to be given to lower courts to close cases

9. Cases should be put into different categories and every category should have a time

limit in which each case is to be closed

10. Media campaigns should be done to make people aware about the judicial system

and its implications

11. People having criminal cases against them should not be allowed to contest

elections

12. A set number of cases should be taken up by the lower courts everyday

13. Leaves for the judiciary system should be reduced

14. Judicial categories with sector expertise could be developed so that the cases could

be closed quickly

15. The system of appealing in higher courts should be relooked at

16. Time limits should be specified for filing a charge sheet by police

17. Laws must be framed with absolute clarity and should have no room for

misinterpretation

18. Laws need to be made comprehensive in nature and simpler in the process

19. Old laws should be changed according to 21st century

20. Like IAS and IFS, another wing called IIS (Indian Investigative Services) should be

launched

21. Some of the retired judges should be allotted responsibility of overseeing the lower

courts and help in quick closure of cases

22. A separate tribunal should be created for the property cases since quick redressal is

impossible

23. Release all under trials who have spent more time in jail than required by the

committed crime

24. Amend law to punish and penalize all those who lie and change statement and use

system to their advantage

25. Lok Adalats should be made standing, regular, full-fledged courts with their

procedures being fast, simple and short and aimed primarily at mediation and

conciliation

26. Institute fast tracking Courts for females and children related cases

27. The Indian Central Jail system should be completely re-looked

DRT Solutions Weekly Mail – 342^nd Issue dated 28^th November ’14

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Scope of Sec 17 of Securitization Act 

It is observed that still the courts and litigants have confusion and misconceptions about the scope of Sec 17 of the Securitisation Act. Our views are as under:-

(a)   As per the Tiwari Committee on whose recommendations the DRTs were conceived and constituted vide page 77 of the relevant report of RBI published in 1984, the Advocates and Judges in DRTs were to be such persons having specialized knowledge in the functioning of banks, financial institutions and industry. The RDDBFI Act was enacted in 1993 and SARFAESI Act was enacted in 2002 but till date neither proper Advocates and Judges have been posted nor the existing lot have been trained.

(b)   Despite clearcut verdict of the Supreme Court more than 15 years back, the Tribunals (so also DRTs) were to be transferred from the parent Ministries (in case of DRTs from the Ministry of Finance) to Law Ministry. This has not yet been done. As a result of lot of illegalities are being committed by the Ministry of Finance in favour of Banks and Financial Institutions e.g. ex-Bank Officials are being posted as the Judges and Recovery Officers, Ministry of Finance is holding meetings of the DRT Judges and issuing instructions to them regularly, Finance Minister and the RBI Governor unauthorisedly are making statements pressurizing the DRTs to expedite the adjudication process etc.

(c)   The above has openly created a biased judicial mindset in DRTs in favour of Banks which is clearly against the Constitution of India.

(d)   Nobody can be left remediless. The Industrial and business community which borrows money from the Banks and the Financial Institution is creating wealth and earning money for the nation by way of interest on the said loans as well as the huge taxes which are paid by them. Out of such money only Judges of DRTs are getting their salaries and the advocates are getting their professional charges. When everything is going on well, everybody is happy and takes credit but when there are problems (most of which are beyond control of the business and industrial community), everybody becomes against them. As per the law contained in Govt policies and the RBI Guidelines, the said loans are sanctioned only when the project is financially viable i.e. the interest is earned and then paid as well as the installments are earned and then paid. So recovery of loans along with the interest is out of the earnings and hence no tangible security or collateral should be taken or insisted upon. In the period of problems, the banks and FIs should help by way of restructuring, rehabilitating or modifying the business so that again there are earnings but in no case recovery should be out of the securities. If that is not done it amounts to wrong doing resulting into huge loss and damages which are liable to be claimed by way of counter-claim. In DRT Act there is express provision of counter-claim. In the SARFAESI Act, there is a supporting verdict of DRAT Delhi. In all the cases, the said counter-claim is much more than the claim of the Banks and FIs resulting into “No Debt Due”  It is needless to mention that such counter-claims of multimillion dollars are quite common in USA vide para 1.01 of the book “Lender Liability and Banking Litigation” – by Edward F. Mannino originally published in 1989 and updated in 2010 by Law Journal Press, Newyork. Five of the ten largest judgments nationally entered in 1987 in USA were against lenders.

(e)   In view of above we have been emphasizing that when perfect pleadings including the counter-claim have been made in the application under Sec 17 of the SARFAESI Act and the borrower’s advocate has full knowledge about the banking, industry, finance, law of torts and the damages, the borrower is entitled to have full trial in DRT. It is needless to mention that the banking litigation is based on documents all of which are in full power and possession of the lender.

(f)    In this connection the following para at page 842 of the 5^th Edition of the book ”Law & Practice of Securitisation - -“ by Dr R.G. Chaturvedi is quite relevant:-

“The powers of the Tribunal under section 17 are sumptuous, virtually embracing all such incidental or ancillary powers vested in or excercisable by any civil court while trying an original suit relating to or involving some propery.”

(g)   The Supreme Court in the matter of Mardia, in para (59) has stated as under:- 

“(59).               We may like to observe that proceedings under Section 17 of the Act,  in fact are not appellate proceedings.   It seems to be a misnomer.  In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance  against the action or measures taken by one of the parties to the contract.  It is the stage of initial proceeding like filing a suit in civil court.   As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case.”

(h)   Thus in view of above, the DRT has to deal with the application u/s 17 just like a trial court. It has to be a full trial for complete justice. It is more so due to there being virtually no appeal u/s 18 due to minimum deposit of 25% of claim amount, which is impossible otherwise the account would have never turned into a NPA. This is mandate and guarantee of our constitution. Treating proceedings u/s 17 as execution proceedings is a misconception.

(2) ICICI Bank Fraud  

Mr Firoz Poonawalla has sent the following mail which is self explanatory:-

ICICI bank fraud 

Received from a friend.......
===================

ICICI bank fraud in my own account - Please beware - Urgent and Important

The below mentioned fraud happened in my account a few days back and I
thought I should take up this opportunity to warn each one of you so that
you and your family can take necessary step to stay protected and safeguard
the hard earned money in the Bank account.

The Incident:

On the 6th January 2011, I made a transaction in my account and reconciled
my account on the internet banking (as I regularly do after a transaction,
to check if the account wasn't swiped twice).   I was getting late for a
commitment and therefore it did not strike me that I had not got any mobile
alert or email notification for the debit in my account. I did not smell
anything fishy.

On the 7th January 2011, it was Business as Usual and then I was off to
Dehradun on the 8th morning to spend the weekend with my family, sister and
Brother-in-law who had come down from Boston. On the 10th , SNF   had a
client visit and with the traffic jams spanning the complete city, I was
very tired and hit the sack as soon as I reached home- not checking my
internet banking transactions.

However, on the 11th , I logged onto my internet banking to check the amount
in my account as I had to write a cheque to my builder from whom I am
purchasing a flat. To my astonishment I could see only Rs 6,000 in the
account instead of the amount which I had saved to make the final down
payment to the builder. For a second, I thought that this could have been a
typo error on the bank's website, where the Bank had misplaced the two
suffixing zeros (before the decimal of course ;-)) to the account balance.
But as soon as I opened the mini statement, I could see that several
transactions had been made without my knowledge and someone was siphoning my
Money. Damn !!!!!!

I quickly ran to ICICI Bank at sector 18, and registered a complaint with
them that these transactions weren't done by me. Infact, a few of these
transactions took place when I wasn't in town. To my surprise, all these
transactions were done through my own cheque book, with my own signatures on
the cheques. But my cheque book was safe in my cupboard at home and I
confirmed it.

The initial investigations revealed that the RTGS transactions had happened
on the 7th and subsequently considerable amount of cash was withdrawn from
my account through various branches of ICICI by presenting "Self" cheques
and my ID proof. These transactions happened on the 8th and 10th.

The officials at sector 18, informed the branch manager of the Branch where
this transactions took place and I was requested to proceed to that branch .
I rushed to the ICICI bank brach at Shahdara and they showed me the photo ID
of the person who has made the RTGS transaction and withdrawn the cash. I
was shocked - it was my voter ID with my name, DOB, address, fathers name,
my signature, but not my photo, someone else's - the photograph of the
person who had come to collect the money. The ID was stamped with a hologram
and govt seal over it.. My ID had been forged. And made me weary of the
complete system.

We then looked at the footage of the person who took the money from my
account - characteristics of a designated criminal. I had never seen him
before. We then moved to Allahabad bank where this person, who was bearing
my Identity and presuming to be Manan Maheshwari, had made the RTGS transfer
to - some Sanjay kumar. We checked his records in Allahabad Bank. As
expected he had withdrawn every penny from his account. We took down his
details and left. There was nothing else that Allahabad official could help
us with, till the time we had a written FIR against the person. The ICICI
bank has a final complaint from me and lodged an FIR.

What the crook knew :

The crook was aware that ICICI bank doesn't match/ look at the photo on the
ID proof with their own KYC records on their system. He used this to his
advantage and left a big hole in my bank account. He also had all my
personal and official details which he used to forge my Identity. Also, he
knew that one can't make a transaction of more than 1 lakh through cheque on
a single day until he intimates the bank 1 day in advance.
He also knew that without approval from higher management of ICICI, he can
only make a transfer of 5 lakhs and no more.

How he implemented his plan : (My inference)

He forged my ID by making a voter ID on my name. (ICICI bank official told
me that he himself knew of 4-5 machines in Delhi who could have done this).
He then proceeded to Vodaphone and got a mobile connection on my name
providing a fake address proof. Then he went to ICICI bank and showed my
identity and address proof and got my mobile banking number changed in the
records of the bank. As soon as the number was updated, he called up the
customer care of ICICI bank and checked my balance. As soon as he was done
with this, he ordered a cheque book through mobile banking. Obviously, I
wasn't getting any intimations on my number because he had updated the
number with him on ICICI records. I wasn't aware on what was happening - I
didn't even get any email regarding the mobile number change.
The customer care person would have told him and he would have got an
intimation as soon as the cheque book was dispatched/reach the designated
address. He went to Dehradoon, to my communication address and collected the
cheque book from the courier guys displaying the fake ID. I am assuming that
by this time he had mastered to forge my signature. He came back to Delhi
and implemented his plan of stealing all my money from the Bank account.
He
left only 6k in my account as he was aware that as soon as the account goes
below 5k, the bank informs the customer through an email.

Loophole :

On ICICI part they goofed up on not checking the photo ID of the person who
was making these transactions. Please note that the only bank which has this
process in place is SBI
On the crooks end, he messed up to make the RTGS transfer leaving behind the
details of his partner whose account is with Allahabad Bank. He also did not
think about the CCTV cameras in the Bank branch.

Learning :

Please don't share your personal details with anyone. Whenever you are
applying for a home loan, credit card, or mobile number, make sure you cross
the document and write across it for the purpose it is to be used.   Please
check you internet banking / mobile banking , if you have any on a regular
basis and make sure that you change your sign on the bank records,
regularly. If you get any request from the Bank about a request raised by
you (which you feel that you haven't) please ensure that you check the same
with the Bank.

This incident can happen with any one of us. There is a huge mafia and they
simply don't care about who we are, where we are from . They just simply
carry out this criminal activity and enjoy on someone else's hard earned
money. No matter if I get my money back or not, I would take this fraud to
the highest level from my end, but would request you to inform your
relatives and friends to kindly be ware.

I am in touch with ICICI bank and they feel that they would be able to turn
around and return the complete amount to me.ICICI bank has already begun to
rectify this loophole in their process, but the other banks are not even
aware.

There is nothing to panic, but please make sure that you have all your
accounts in place, visit you branch and update your latest contact details
and regularly check your account online.
----------------------------------------------------------------------------------------------------------
If it's worth forwarding, it's worth cleaning up. Please delete
details of all previous senders (including mine) before forwarding
again to reduce spam, viruses & identity theft. It's best to use the
'Bcc' field while forwarding mails. Thanks.

DRT Solutions Weekly Mail – 341^st Issue dated 21^st November ’14

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Questionable Condition of 25% Minimum Deposit in Appeal u/s 18 of the SARFAESI Act

One of our clients from Mumbai Mr Kashid (M-09320231820) is initiating challenging the said provision.  Our other clients from Cochin, Bangalore and Nagpur have shown interest in supporting Mr Kashid. Other interested borrowers and guarantors may contact Mr Kashid

It is needless to mention that it is one of the most important matters for the borrowers and guarantors who are contesting their cases in DRT.

(2) Doing Litigation in India

The following article is self explanatory:-

India: Doing Litigation In India

Last Updated: 18 November 2014

Article by Vijay Dalmia

http://www.mondaq.com/india/x/354652/trials+appeals+compensation/DOING+LITIGATION+IN+INDIA

India has well defined substantive and procedural laws along with a well-established system of judicial enforcement of rights. An elaborate mechanism is provided for grievance redressal under Indian statutes. A complete hierarchy of courts and tribunals has been set up [http://indiancourts.nic.in/index.html]. India has three tier system of judiciary, which includes District Courts, at the first tier, comprising judges for adjudicating upon civil disputes and criminal cases at the lowest level. At the second tier, each state in India has a High Court which has the appellate and supervisory jurisdiction over all the courts and tribunals in such state. The Supreme Court of India [http://www.supremecourtofindia.nic.in/], which is at the third tier, is the highest court of justice in India having appellate and supervisory jurisdiction over High Courts of all the states. The Supreme Court of India and all the High Courts also act as the custodians of the constitution of India. Government of India has also formed special tribunals to deal with matters of specific nature, such as Intellectual Property Appellate Board (IPAB) [http://www.ipab.tn.nic.in/], Income Tax Appellate Tribunal (ITAT) [http://itat.nic.in/], Debt Recovery Tribunal(DRT) [http://www.drt.co.in/], Central Administrative Tribunal(CAT) [http://cgat.gov.in/], Board for Industrial and Financial Reconstruction (BIFR) [http://www.bifr.nic.in/] and Central Excise Service Tax Appellate Tribunal(CESTAT) [http://cestat.gov.in/].

Doing litigation in India may be an unending process, frustrating the entire purpose of litigation. Indian Judicial System is marred with exceptional judicial delays and slow process. The present sad scenario of Indian courts can be understood from the data derived from the website of the Supreme Court of India [http://www.supremecourtofindia.nic.in/new_s/pendingstat.htm], pertaining to the pendency of cases in various Indian Courts. A glimpse at the data given hereinafter of the pending cases in the Indian courts is grave enough to pose caution. As of May 2010, 55,797 cases are pending with the Supreme Court of India, over 3 million cases are pending in the 21 High Courts and over 26.3 Million civil and criminal cases are pending in the District Courts [http://www.supremecourtofindia.nic.in/HCquarterly_pendency_Dec2008.pdf].

The litigation in India should be initiated only after a well thought strategy about the entire process, time and cost involved. Litigation in India should not be initiated impulsively. Though it may not be possible to avoid litigation at all times but strategies can be formed to successfully end the litigation by achieving practical objects. Alternative Dispute Resolutions like arbitration is a well recognized method of avoiding litigation in India.

Time frame for Litigation

In view of the above data, it is very difficult to predict a time band within which litigation in India can be completed from the filing of the suit and till the appellate stages are over. However, a well thought strategy can definitely put an end to the unending and unpredictable litigation in India.

So, while doing business in India, the first endeavor should be to avoid litigation. However, there may be situations when a foreign entity may get embroiled in an unavoidable forced litigation in Indian Courts.

It has been observed that most of the litigation which takes place in India during the course of business by a foreign entity with an Indian, is a result of bad contracts, which could be avoided by  taking care of  and contemplating various contingencies which may arise during the course of business in India.

Cost of Litigation

Any peculiar civil action in the Court of law involves following components of costs i.e. Court Fee, Professional Fee and Miscellaneous Expenses and Disbursements.

In a Civil action, court fee is required to be paid at the time of the institution of the suit, which may be fixed or ad-valorem (a percentage of the amount claimed). Generally, the fixed court fee is negligible. However, any claim relating to recovery, damages, compensation or property etc. may attract a court fee which is based on a percentage of the claim amount or the valuation of the subject matter of the suit, e.g. for a suit for recovery of a sum of INR 60 Million (approx. US$ 1290000) in Delhi High Court, an amount equivalent to  1 % of the claim i.e. INR 0.6 Million (approx. US$ 12900) has to be paid as court fee at the time of the institution of the suit. In Criminal matters, only a trifling court fee is payable.

For any matter relating to litigation, the component of professional fee may include fee for advice, drafting of pleadings and appearances before the Court. In India, for professional fees, generally the system of lump-sum fee and fee on 'hourly rate' basis is followed. However, Indian law does not allow the payment of contingent fees or conditional fees, i.e., any fee for services provided where the fee is only payable if there is a favorable result. 

The third component of litigation cost, is usually not very high since the same pertains to miscellaneous issues related to litigation including typing, photocopying, postage and courier charges etc. 

Mechanism for Enforcement of Judgments

Indian judicial system is a creation of the Constitution of India. The distinguishing feature of the Indian Judiciary lies in its independence from the executive / government. The Central & State Governments and their functionaries are duty bound to obey and implement the orders of the Courts in India, and any noncompliance on their part results in the initiation of contempt proceedings against them. Besides coded laws, India also follows the common law principles. The judgments of the High Courts and Supreme Court of India, as precedents, have the same force as that of the "law of the land".

The Indian Government Machinery including the police is under an obligation to follow and implement the orders of the court. There are special provisions for the enforcement of the orders of the court, including Contempt of Court proceedings, which provides for a fine as well as imprisonment, in case of disobedience. There are also other legal means for execution / compliance of the orders of the court i.e. by way of appointment of Local Commissioner / Receivers.

As already stated that the Indian Judiciary does not suffer from a nationalistic approach, which is itself good to build confidence in foreign entities.