Public sector banks allowing large exposure without adequate securities Serious concern; Review loan guidelines: High Court of Karnataka
The High Court of Karnataka rejected the petition filed by the founder of NMC Health, Dr Bavaguthu Raghuram Shetty (BR Shetty) who challenged the Lookout Circulars (LOC) issued by the Bank of Baroda and the Punjab National Bank against him and the approval issued by the Bureau of Immigration does not allow him to travel to Abu Dhabi.
A single bench of Judge PS Dinesh Kumar while rejecting the petitions filed by Shetty, said: “It is undoubtedly true that a citizen of this country has the right to travel. But I hasten to add that people who take public money also have a sacred duty to repay it. “
The court suggests lawmakers and the Reserve Bank of India review the lending guidelines.
During the hearing, the court asked bank lawyers to explain on what security the banks allowed such exposure (Bank of Baroda Rs 2,000 crore), (Punjab and National Bank Rs 800 crore). The answer given was that the companies to which loans were made were “listed companies” on the London Stock Exchange and that the share value had shown that the said companies had high net worth.
The court noted “the tangible assets, if any, mortgaged in favor of the banks and their valuation is not imminent. the economy of this country.
After which, he suggested “It is time for lawmakers and the Reserve Bank of India to review lending guidelines and procedures and take corrective action to ensure public money is secure before disbursement.”
Shetty, has promoted several companies in the pharmaceutical, hospitality, healthcare and foreign exchange industries. He resigned from the management and handed over the companies to the respective management between 2015 and 2017. At the end of 2019 and the beginning of 2020, due to various illegal activities and mismanagement in the companies by the managers, the Companies have not been able to service loans amounting to Rs 2,800 crore, obtained from various banks.
Submissions made on behalf of Shetty:
It was reported on his behalf that the loans had been taken out in UAE by various companies and the petitioner gave guarantees in UAE and not India. In addition, the repayment default occurred due to mismanagement of the borrowing companies that came to light between December 2019 and April 2020. Subsequently, legal proceedings were initiated by banks in the United Arab Emirates. In addition, Loans have been granted to Listed Companies, which are managed by the Directors and the respective CEOs / CFOs.
The applicant, having resigned from the management of the companies in 2017 and given that transactions took place in the United Arab Emirates, the respondent banks do not have jurisdiction to invoke his personal guarantees in India. The banks cannot stop him from going to the UAE to defend the business against him.
It has also been argued that the issuance of a letter of credit is governed by an official memorandum issued by the Ministry of the Interior, the exercise of power can only be exercised in exceptional cases against fraudsters, individuals who take out loans and default voluntarily, money launderers, etc. do not fall into any of these categories. Finally, it has been argued that the petitioner is “only a guarantor”. The banks opposed the petition.
Findings of the Court:
Judge Kumar read through the official memorandum and said that “clause (c) of paragraph 7 gives freedom to a person against whom a letter of credit is issued to approach the officer who ordered the issuance of the letter of credit and explain that it was wrongly issued against him.In the letter written by the Commissioner of the Immigration Office, it is stated that the letters of credit were issued at the request of BOB and PNB. Therefore, the applicant must first apply to the banking authorities. Therefore, an instruction to provide a copy is unnecessary. “
With regard to please declare the issuance of letter of credit without notice as illegal and contrary to Articles 14, 19 and 21 of the Constitution of India. The court said, “On the face of it, the prayer is ill-conceived because the whole purpose of issuing letters of credit would be defeated by notice. By amending the official memorandum, bank presidents were empowered to issue letters of credit. Bankers may consider issuing LOC to protect the interest of the Bank based on the subjective satisfaction of the issuing authority and in this case BOB and PNB. Therefore, the argument to seek notice is incongruous and therefore rejected.
In view of the petitioner’s request to allow him to travel to Abu Dhabi, the court said: “Unless the petitioner exhausted the recourse of contacting BOB and PNB and explained to them how the letters of credit were were issued wrongly and that the banks pass further. orders thereon, there is no cause of action to consider said prayer. “
After considering the judgments relied on by the applicant and the respondents, the court said: “In the facts of this case, it is relevant to note that the applicant is responsible for the repayment of approximately 2,800 crore rupees loaned by the public sector banks. Without a doubt, this money belongs to this country in general and the depositors in particular. This Court cannot lose sight of the fact that the money belonging to that country was used by the petitioner in a foreign country to run his businesses. No document is produced to show that the money lent by BOB and PNB has not resulted in any development in this country. On the other hand, as to date, it has become bad debt and public sector banks are fighting litigation in India as well as UAE to recover the same. “
He added “Therefore, the remedy in the Uco Bank Vs. Dr. Siten Saha Roy case is of no assistance to the claimant as the amount involved in said case was Rs 20 crore and proceedings have been initiated under it. of the SARFAESI law to recover the amount of assets mortgaged to the bank.
The court ruled “In contrast, in this case the amount involved is astronomically high compared to the Calcutta case, which is around Rs.2800 Crores. This is more than a third of the annual budget of a state like Sikkim. So the amount involved in this case is likely to have a serious impact on the economy of this country and therefore the authorities in the case of Shivashakti Sugars Vs. Renu Sugar Ltd., and Marida Chemicals Vs. Union of India are right. applicable title. “
Rejecting the argument that the petitioner is only a surety, the court declared: “In the facts of this case, this admission, without anything more, must lead to the rejection of this petition in limine because a surety is also required to repay the debt.Moreover, it is admitted in the writings that the applicant is the promoter of the borrowing companies.
He concluded by saying “In view of the freedom of the Claimant to approach the authorities of the Bank and explain that letters of credit were wrongly issued, the Claimant is not entitled to redress in these claims. in short.”
Case Details: –
Case title: DR. BAVAGUTHU RAGHURAM SHETTY And IMMIGRATION OFFICE.
Case n °: WRITTEN PETITION N ° 15032 OF 2020
Order date: February 12, 2021.
Coram: Judge PS Dinesh Kumar
Appearance: Senior Lawyer K. SHASHIKIRAN SHETTY, a / w Lawyer SANDEEP LAHIRI for the petitioner.
Lawyer ADITYA SINGH, FOR R1 & R2;
Lawyer B. PRASANNA KUMAR AND Lawyer DR RAVISHANKAR, FOR R4;
Lawyer MANU KULKARNI Lawyer Dharmendra Chatur and Lawyer Rahul Prasad for Poovayya & Co for the respondent 3.