Indian banks and NPAs – II: The process of recovery

Moneylife :A BANKER | July 13, 2012 08:25 AM |



Banks have several ways of recovering money from a bad loan but how effective are they. This is second part of a four part series

A lending bank is generally capable of detecting the “straws in the wind” about a loan account becoming irregular from its monitoring system and from a number of operational features of the loan account itself. Periodical inspection/visit to the borrower’s place of operations helps in forming an opinion. It is rare that a bank is surprised except where the borrower proves to be totally dishonest or a willful defaulter.

Not uncommonly, a borrower might resort to some deviation to conceal the true state of affairs from the bank, in the hope of remedying the problem on his own or hoping the problem could be temporary, in the apprehension that otherwise the bank could take a serious view and interfere with the operation. Such deviations cannot be ipso facto judged as deliberate actions to cheat the bank.

The bank’s credit officials have to be empathetic to analyse quickly and understand the problem faced by the borrower to find a solution to regularise the loan and get the operations on even keel.

Such an approach is essential to safeguard a basically viable unit of production or services and employment which it generates. It is easy for a bank official to condemn a borrower with punitive actions like filing suits, enforcing security, seeking personal bankruptcy, etc for not adhering to the terms and conditions of the loan, to avoid possible vigilance enquiry against him for making a helpful decision in the reasonable hope that the assisted unit might regain viability which is in the interest of the bank as well. (Please see comments in first part: http://www.moneylife.in/article/indian-banks-npas---i-the-extent-of-the-problem/26929.html ).

It takes a while for the bank to consider a loan account as non-standard and possibly irretrievable, if rehabilitation under close supervision does not succeed. There could be several reasons, such as the borrower is incompetent, the economic activity itself is unviable in the emerging circumstances, labour strife, competition, technological obsolescence, diversion of funds to unrelated activities, etc. In such a case the bank has no alternative but to recall the loan and seek to enforce the security to recover as much as possible.

The process of recovery of the defaulted loans involves one of the two methods; 1) without recourse to judicial process; and 2) through the judicial system. In the first one where the borrower is co-operative, assets charged to the bank are sold by private negotiations or by auction. Personal guarantee is also invoked simultaneously to recover some additional amounts from the borrower’s other sources.

Unless the land and building and other fixed assets are a part of the security in favour of the bank, full recovery of the amount owed is well nigh impossible. Typically in the case of working capital loans, sale of inventory and book debts which form the primary security does not get the realisation to meet the amount due. The bank eventually has to write off the shortfall from the provisions held or from the profit.

The Indian legal system being what it is, banks are hesitant to take recourse to legal action, particularly for smaller loans. Even if a bank succeeds in a suit filed case after a few years, enforcement of the decree becomes cumbersome. Hence, banks are increasingly taking recourse to one-time settlement with the borrowers.

The Reserve Bank of India (RBI) has laid down elaborate procedures on the issue of compromise settlements and every bank tries hard to recover much more than the benchmarked amount. This method has succeeded substantially in that the banks are able to reduce the number of defaulted loans. To cite an example, the annual report 2011-12 of Canara bank reveals that more than 17,000 recovery camps were held which fetched Rs1,575 crore of defaulted loans.

Coming now to judicial processes, some of the special and enabling Acts passed by the Parliament to assist lending institutions in dealing with difficult loan accounts are worth examining in brief.

Realising the seriousness of the problem of sick industrial undertakings financed by the banks, the central government passed an Act known as “Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)”. Under this Act, the Board of Financial & Industrial Reconstruction (BIFR) and an appellate authority known as AAIFR (Appellate Authority for Industrial & Financial Reconstruction) were set up in New Delhi. Under this, every company is obligated to register itself as a sick company once its net worth is completely eroded.

Initially this was confined to public limited companies but later in 1991, public sector undertakings were also included. Detailed instructions are stipulated for the sick undertaking and the lending institutions about their responsibilities. First an Operating Agency (one of the lending institutions) is appointed to make a study and work out a draft scheme to decide on whether it is worthwhile reviving the undertaking and if so with what conditions, reliefs, etc. OR certify the undertaking can be wound up.

No legal action can be taken against the borrower by anyone once an undertaking is under the purview of BIFR under Section 22 of the Act which is considered an essential protection for a rehabilitation of revivable entities. The financing institutions need not necessarily agree to the scheme of rehabilitation.

Over the years, it has been found that the borrowers take full advantage of the protection under Section 22 and carry on their operations, even if truncated, with the help of some other friendly bank or on their own and drag the proceedings in BIFR by seeking adjournments of hearing, going in appeal to the AAIFR on some technicality or the other, submitting unacceptable one-time settlement proposals for a fraction of what is owed with repayment spread over several years.

There are a number of cases pending for five to 10 years; ingenuity of borrowers unwilling to repay the loans and frustrate the legal process under BIFR/AAIFR because of the protection they enjoy under the same Act calls for a separate study. One curious case is that of Scooters India (a PSU), which approached the BIFR twice over the last two decades. This company should have been wound up a decade earlier but it is being revived!

BIFR is also guilty of prolonging the cases—initial acceptance for registration itself could take a year and thereafter permitting series of adjournments. On all counts the record of this Act, in practice, has moved away from the original intention of speedy rehabilitation or expeditious enforcement of measures determined in the proceedings.

Ironically the first objective of the Act is “the timely detection of sick and potentially sick industrial undertaking”. The definition of sickness under the Act is the erosion of 100% of net worth. No sane lender will wait to consider rehabilitation when all net worth is lost for BIFR to step in.

Weary of the record of the performance and representations from the lending institutions, the government introduced a bill called “The Companies (Amendment) Bill, 2001, to provide for establishment of the National Company Law Tribunal (NCLT) and an appellate tribunal to replace the BIFR. Its constitutional validity was challenged in the Supreme Court, which suggested some changes. These changes were introduced in another amendment in 2011 for approval of the Parliament.

In 2003, the government got an act to repeal the SICA passed in the Parliament but it could not be notified as the NCLT could not be formed for the reason stated. BIFR is continuing as usual. Thus for 10 years now, BIFR is hanging out with a success rate of rehabilitation reported to be below 10%.

(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession)

Indian banks and NPAs - I: The extent of the problem

Moneylife  ;;A BANKER | July 12, 2012 11:58 AM | 


NPAs of banks have reached alarming levels and this is not just because of a slowdown. The first of a four part series


Until the first major oil shock of 1973, banks were probably not exposed to such a wide variety of risks that had not been widely experienced until then. These were: Rapid changes in interest rate; capital and foreign market gyrations; risk arising from cross border lending; operational risks including those relating to narcotics;
and underworld transactions, risk posed by break down of interbank payment system so on. Meanwhile, credit risk—or the chance that a borrower may default on loan obligation— retained its primacy in the hierarchy of all risks, since lending continues to be the primary function of banks.


Credit dispensation by banks brings together savers and investors of a community and bridges the time gap between the entrepreneur’s intention to start an economic activity and to raise the resources needed for it. What is often not explicitly understood is that each party in this transaction runs a risk, albeit of different nature: Savers may lose money if the banks fail; banks collapse if their borrowers default in large numbers, and borrowers may sink if the economic activity for which they borrowed fails. Unfortunately, such failures have wider ramifications for the economy as a whole.



Lending is a function that requires evaluation of an amalgam of factors like the history, competence and character of the borrower, security offered against the loan, nature of economic activity and pricing of the loan.  Above all, it requires a clear appraisal of the future of the activity in terms of cash flow and profitability, to name only two. Management guru, Peter Drucker said, “Economic activity, because it is activity, focuses on future and the one thing that is certain about future is its uncertainty, its risk. Profit is the premium for the risk of uncertainty”. Thus even when a credit proposal to finance an economic activity is considered ‘perfect’ as of now, there is no guarantee that the loan remains within the risk assessment made at the time of origination.

There are many ways in which the dimensions of credit risk are sought to be minimized. These consist of factors mentioned above together with the stipulation of special covenants and an effective system of follow up of the borrower’s operations, etc. Whatever may be the rigour of credit appraisal and follow up and monitoring of loans, some loans sour up for a number of reasons, not necessarily of dishonesty or incompetence of the borrower. External factors outside the control of borrowers, like say, power cuts, as is being experienced by many enterprises across the country now, could result in non-adherence to the terms of the loans, repayment obligations, etc. These will eventually add up to the statistics of non-performing assets (NPAs) of the banks but behind each NPA, there could be a story of socio-economic and moral malaise.

By evaluation of the circumstances of each case of stress experienced in the conduct of loan accounts, banks are required to make, unavoidably with some degree of subjectivity and perception, dilemmatic decisions of “to or not to” assist the borrowers by way of holding operations, restructuring of loans, seeking merger with a stronger enterprise, granting of additional loans, etc, to nurse them back in the expectation of regaining viability, or cut losses by treating the operations as unviable and mark the loan for recovery. These decisions call for wisdom, earthly common sense and may be some luck, as well. They could prove wrong in course of time, which is the price of doing business.  In any event banks start making prudential provisions if the loans turn into non-standard category; in recent years, general provision is made on standard assets as well as a further buffer.

No bank can be true to its basic economic function if it were to hesitate to take difficult decision because it could have an immediate adverse impact on its financials and on the career of the person(s) making the decision. When a decision to assist the borrower’s operation proves wrong, there are a whole lot of authorities including vigilance officers, with inadequate knowledge and field experience, infested with hindsight to adjudge and attribute motives to the officials who made the decision, generating in the process bank-wide fear complex and hesitancy in making decisions. As the former chairman of the US Federal Reserve, Alan Greenspan said in the US context, “A perfectly safe bank, holding a portfolio of treasury bills, is not doing the economy or its shareholders any good”. If the banks in India were to invest the customer deposits in government securities—a system called narrow banking—they could be safe; but the government is not the only agency in economic function of the country nor is it most efficient. Such an appropriation by the government of resources garnered by banks can undermine the democratic system itself.

The growth of NPAs in Indian banks has been a matter of serious concern. This is not in the least due to failure of economic activity in the normal course of business, or dishonesty of the borrowers or due to bad decisions/to indifferent follow up/even occasionally reported acts of malfeasance on the part of bank officials. On a larger canvas, rapid rise in NPAs reflects also on decadent values of the society heavily influenced by the socio-political developments. The loan ‘melas’ of the late 1980s, periodical debt waiver schemes, promise of free power, etc, on the one hand; and rampant corruption, generation of black money and periodical announcement of voluntary disclosure schemes for tax evaded income, etc, on the other hand have all taken toll of the cherished values of the Indian society, and in the process scalped the Rule of Law.

The Narasimham Committee II (1998) explains succinctly the economic consequences of NPAs as, “NPAs constitute a real economic cost to the nation in that they reflect the application of scarce capital and credit funds to unproductive uses. To the extent that banks seek to make provisions for NPAs or write them off, it is a charge on their profits. To be able to do so, banks have to charge their productive and diligent customers a higher rate of interest. It thus becomes a tax on efficiency. NPAs, in short, are not just a problem of the banks. They are bad for the economy” (Emphasis added).

Let us now turn to the magnitude of the NPAs. As of March 2011, all scheduled commercial banks reported gross NPAs at Rs97,922 crore, net NPAs (after setting off provisions) at Rs41,813 crore, accounting for 2.25% and 1.11% of the gross advances. Of the gross NPAs, priority sector loans for the year (directed lending) accounted for 51.8%. These banks made aggregate provisions of Rs38,742 crore from out of their earnings. The Reserve Bank of India (RBI) has estimated that the NPAs could indeed go up substantially if the loans restructured in 2009, as per its onetime special dispensation to meet the problems arising from global the financial meltdown, were to become non-standard. The total loans restructured amounted to Rs1,06,859 crore. (figures quoted in this paragraph are taken from the RBI’s Report on Trend and Progress of Banking In India 2010-11). Plausibly the NPAs reported as of 2011 may turn out to be understated.

How do banks, nay, indeed the RBI and the government tackle the menace of the growing NPAs in banks?

(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)

Gujarat High Court notice to Centre over NPA defination in SRFAESI Act

BS Reporter / Mumbai/ Ahmedabad Jul 16, 2012, 00:49 IST

Gujarat High Court has issued notice to the Union government while hearing a petition challenging provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SRFAESIA), 2002, defining the non-performing assets (NPAs) and recovery mechanism from it.

A division bench of acting Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala, hearing the petition filed by a Surat-based textile firm last week, issued notice to the Union government and scheduled hearing after three weeks. The court also granted interim relief to the petitioner Goenka Fabrics and stayed any action by the Bank of India, which had initiated recovery under the SRFAESIA.

According to case details, the petitioner firm had defaulted on payment of loan to the Bank of India, following which the bank declared the company's account at NPA under SRFAESIA section 2(O) and initiated recovery proceeding as per the Reserve Bank of India (RBI) guidelines in such cases.

The petitioner firm through its lawyers Vishwas Shah and Masoom Shah have challenged the legality and validity of of section 2 (O) of SRFAESIA and have termed it as unconstitutional.


"The section 2 (O) of the Securitisation Act 2002,is unconstitutional as it is arbitrary and unreasonable. It refers to RBI guidelines, which has a definition which is completely in contrast to the one stated in the Act," the petition read. "The section relies on what is sub standard, loss making and doubtful account to understand the term NPA, while the RBI guideline relies on NPA to explain what is Sub Standard, loss making and doubtful account. Thus the whole definition is arbitrary and unreasonable," it added.



The petitioner further said, "The definition as stated in section 2 (O) empowers the bank to declare any account as NPA as per its whims and fancies. The delegation of power on the bank to declare a account NPA as per the definition which relies on RBI Guidelines which are ambiguous and contradictory to the definition stated in Securitization Act. Thus the section 2 (O) is required to be declared unconstitutional."


It further argued in the petition that the Bank cannot just on it’s own declare an account as NPA without showcasing when and how a performing asset became non-performing, and it also has to demonstrate the evidence and the proper documents to back the claim.


"The section 2 (O) violates article 14 , 19 and 21 of the Constitution of India. The Section as read with Prudential norms, creates confusion and disharmony, it fails to meet required criteria 13 of clarity and harmony," petitioner added.

Indian banks & NPAs – IV: SARFAESI Act and its impact

Moneylife :A BANKER | July 16, 2012 08:26 AM |

Public sector banks themselves must handle their NPAs by strengthening their recovery departments to minimize the role of borrowers and their cohorts masquerading as experts who derive undue benefits from a well intentioned scheme. This is the concluding part of a four-part series

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) was born out of the Narasimham Committee-II recommendations after some modifications. Asset reconstruction companies are set up, and registered with the Reserve bank of India (RBI) as a securitisation company (SC) and reconstruction company (RC) to acquire distressed secured financial assets (both moveable and immovables).  


The banks which transfer the assets are paid off by way of security receipts (SRs), debentures, bonds, etc as stipulated in the Act, which are subscribed to by only Qualified Institutional Investors and redeemed in due course of time, some of which would mature soon. These are treated as non-SLR securities and their valuations, provisions against fall in value, etc, are to be done as per the rules applicable to any other non-SLR security.


ARCs are deemed to be the lenders and have all the rights of the original lending banks. There are 14 ARCs in India, some of them promoted by some banks coming together; the first one was ARCIL, sponsored by SBI, ICICI Bank, IDBI Bank and PNB.  


The underlying idea of bringing into fruition ARCs under SARFAESI Act is to enable banks to clean up their balance sheets, pass on the burden of recovery to an agency which could give full-time attention  to realize a higher amount than what the borrower is willing to offer and thus generally help faster resolution of NPA.


Where the assets are charged to several banks under multiple banking arrangements, ARCs endeavour to aggregate them to help better realisation from the eventual buyers which individual banks might not be able to get. In the case of security charged to a consortium of banks, once 75% of lenders (by value) agree to sell the assets to ARCs, other members do not have option to differ.


Despite the apparent advantages of transfer of assets to ARCs, banks, after the initial period now seem reluctant to pass on the NPAs to them for various reasons. There is a feeling that ARCs’ offer price is low and worse still that the assets are sold by them eventually to original promoters of the companies or their relatives in some “sweet heart deal” as they know the value of the assets especially of the land and buildings. Besides, bank officials have a fear that if the realisation of NPAs is low, they could be questioned on the deals struck with ARCs.


In a meeting called by the Central Vigilance Commission (CVC) in May 2010, and attended by CMDs of some banks, the Indian Banks Association (IBA) and CBI officials expressed the opinion that “some ARCs were found to be directly helping the defaulter in getting back the properties by paying very low amounts to banks and thereafter mark up and sell the property back to the borrower”.


It is well-known that sale of land involves considerable portion of consideration being in paid by way of unaccounted money. Yet another reason for the luke-warm relationship with ARCs is that banks which are mostly working capital lenders do not always have a charge on fixed assets and the ARCs have not been enthusiastic about selling off current assets.  


What is more, the banks have found that when they issue notices to borrowers under SARFAESI Act, the response is much better. The amount of recoveries done under the Act has been significantly higher comparatively speaking than under BIFR, and faster.


The one major problem the banks experience in pursuing SARFAESI permitted action is that an aggrieved party, generally the borrower, can make an application to a DRT and get a stay order on sale which is not difficult to obtain. Nevertheless, the banks have felt use of SARFAESI has been more effective than other legal provisions.


The bank officials feel that by strengthening the recovery department, they can show greater success than by handing over NPAs to ARCs. All said and done, the loyal bank officials definitely have greater commitment to the health of their bank than the ARCs.


The imperceptible trust deficit between the banks and the ARCs could be inferred from the fact that the SBI referred just six cases with claims of Rs40 crore to an ARC during 2010-11 though its bad loans were about Rs40,000 crore. (Source: The Economic Times, 13 March 2012). SBI is one of the sponsors of the first and the largest ARC viz. ARCIL.  


Officials of various banks in the recovery departments state that the ARCs, with their high profile directors, have become a strong lobby to advocate larger flow of business to them from the banks. Coincidentally perhaps, in May 2012, the ministry of finance (Department of Financial Services) directed all public sector banks to designate one or more ARCs as their “authorised officer to take up recovery of loss assets on behalf of banks on commission basis”.


It would have been appropriate, say, for the RBI  to have studied/ audited the financials and methods of operations of the ARCs and the reasons for the existing trust deficit between banks and ARCs before the ministry issued this direction. Besides, the definition of authorised officer given in the SARFAESI Act does not include ARC, though it can be an agent.


The distinction between the two seems to have been made purposefully in the Act and therefore it seems a bit odd that the ministry directed the banks to designate the ARCs as authorised person instead of as agents. This confusion needs to be cleared.


The role of an agent is governed by Contract Act; banks being the principal become liable for acts of omission and commission of the agent as such. There is no reason for banks to undertake such an onerous responsibility. It is difficult to escape the feeling that ARCs are perpetuating their existence with some help from the finance ministry.


Even as the government was planning to introduce a bill in 2001-02 to assign the BIFR responsibilities to the National Company Law Tribunal, the RBI took a proactive measure of introducing in August 2001 “Corporate Debt Restructuring (CDR)” scheme. The objectives are, “to ensure timely and transparent mechanism for restructuring of corporate debts of viable entities through an orderly and coordinated restructuring programme outside the purview of BIFR, DRT and other legal proceedings”.


CDR is a well known mechanism to tackle incipient sickness/possible delinquency of a loan and restore viability of operations adversely affected by external and internal factors in the least disruptive manner by minimizing the losses to the creditors, the concerned corporate and other stakeholders. In India this is applicable to corporates with loan exposure of Rs10 crore or more to the banks.


CDR is not a part of any statute. However legal strength is provided by certain prescribed agreements between creditors and between borrowers and the lenders. The CDR scheme has laid down pretty elaborate system for appraisal, monitoring and reporting to various levels of authorities.


A CDR package envisages certain sacrifices and concessions to be given by lenders to the corporate concerned which could be also obligated to bring in additional equity and bind itself to the terms of the package and covenants. The package needs the approval of a majority (called ‘super majority’) of at least 75% (by value) of the lenders in which case the minority of lenders has to fall in line. In contrast, under the BIFR dispensation, the minority cannot be forced to follow the majority.  


CDR is a ‘success’ if one were to judge it by the statistics of progress: As at March 2012, the CDR cell approved 292 cases and another 41 are in advanced stage of approval, involving an aggregate amount of Rs1.86 lakh crore of debt. The number of cases referred each year has been moving up and in 2011-12 it reached the highest figure of 87 cases with a debt of Rs68,000 crore.


Yet lenders are not celebrating this record and perhaps the RBI may be feeling the “Winner’s curse”. Reasons are not far to seek. In practice, it appears that some lenders in league with ARCs or the promoters have referred the cases to CDR cell to avoid immediate classification of the loans as non-standard in their books.


The promoters of large corporations being influential prefer the CDR route to salvation than facing SARFAESI action by the lenders. Considering the large amount of debt sought to be restructured with not inconsiderable sacrifices by lenders, one would have demanded a more careful approach in referring the cases under CDR scheme.  


One quick action to remedy the current situation of handling NPAs will be to divest DRTs of all company cases and hand them over to the National Company Law Tribunal (the relative Act was passed in 2002 but some amendments are yet to be approved) to be set up in replacement of BIFR to deal with not only sick undertakings but also such of those cases which now are dealt with by CDR mechanism beyond a certain debt level of say, Rs100 crore.


CDR as a non–statutory and voluntary method can remain open for smaller corporates. Given freedom of action and without the fear of vigilance enquiries imbued with hindsight, public sector banks themselves must be able to handle substantially their NPAs by strengthening their recovery departments. 


That could minimize the role of the borrowers and their cohorts masquerading as experts in tackling NPA problem and deriving undue benefits from a well intentioned scheme at the cost of lenders, just as they wore down the BIFR and the DRTs.

(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)

Govt dues don’t have priority over secured debts: Hyderabad HighCourt

BL :July 19, 2012:  

The excise, customs and service tax authorities have to yield to the special dispensation contained in the Debt Recovery Tribunal law of 1993 and Securitization law of 2002 when it comes to competing claims of these taxes and the banks in respect of their dues.

This was held by the Hyderabad High Court in IDBI and others vs the Deputy Commissioner (Arrears Recovery Cell), Central Excise and Customs. 

The Court pointed out that in a welfare State, the Government indeed has to enforce its writ and collect taxes due to it but this inherent power of the State has to yield to the specific provision of the two enactments passed with the intention of addressing the festering problem of bad debts of the banking system in the country.

 In fact the customs and excise laws defer to these two recovery enactments made in favour of the banking system in the country so much so that the secured debts of the banks have a priority over the unsecured tax dues of the government, observed the Court.

It therefore quashed the auction proceedings conducted by the Excise Department against one of the defaulting borrowers’ properties who incidentally was also an excise defaulter. The auction was conducted despite the ongoing proceedings in the Debt Recovery Tribunal.

(The author is a New Delhi-based Chartered Accountant)

SBI to pay Rs 1.85L to customer for breaking open their locker

IE: New Delhi, Sun Jul 15 2012, 12:50 hrs

A Kolkata branch of the State Bank of India has been asked by the apex consumer forum to pay Rs 1.85 lakh to one of its customers for breaking open his and his sister's lockers despite payment of the locker rent.

The National Consumer Disputes Redressal Commission (NCDRC) order came on the plea of SBI against concurrent judgement of the the West Bengal State Consumer Commission and a district forum there holding the bank guilty of rendering deficient service for breaking open the lockers when the customers were not defaulters.

The district forum had directed the bank to pay damages of Rs 2.15 lakh, which was modified by the state consumer commission to Rs 1.85 lakh on an appeal by SBI.

The district forum's order had come on the complaint of Tapash Kumar Majumdar, a resident of 24 Parganas district of West Bengal, who had claimed that when he and his sister had gone to the bank they came to know that their lockers had been forcibly opened along with those of the defaulters.

The NCDRC dismissed the bank's plea, saying "the State Consumer Commission rightly held that Bank had failed to show to it any norm in support of their contention that the bank is entitled to break open the lockers of a consumer where there is no outstanding dues in respect of rental charge of the said locker."

"Order passed by the learned State Commission does not require any interference. The same is flawless," the bench presided by Justice J M Malik said.

In its defence, the bank had submitted that it had inadvertently broken open the duo's lockers along with those of customers who had defaulted in paying the rental charges for the locker facility.

The bank denied having provided deficient service saying that numbers of the lockers to be broken open were published in leading newspapers and the mistake by them was bonafide.

The NCDRC rejected the contention saying since the brother and sister had paid all the rent, they had not checked the notification in the newspapers which was meant for defaulters.

Death due to negligence is an accident: National Consumer Disputes Redressal Forum

PTI Jul 13, 2012, 02.40AM IST

Death of a patient due to rash or negligent act of a doctor is an accident, making the kin entitled to the accidental death benefits from the insurer, the country's apex consumer panel has held.

The National Consumer Disputes Redressal Forum (NCDRC) gave the ruling while ordering the Life Insurance Corporation (LIC) of India to pay accidental death benefits to the husband of the insured, who had died while being operated upon.

"The life assured (the insured) died during an operation by the treating doctors. Thus, the injury to the life assured was an accident caused by outward, violent and visible means and therefore, the Life Insurance Corporation of India cannot be absolved from its liability to pay the accidental benefits to the complainant," the NCDRC said.

The LIC had denied the accidental benefits to Haryana resident Narender Singh, the husband of the insured, saying his wife's death during surgery was not an accident.

It had also contended that the doctors were not negligent or rash as they had performed the surgery fairly without any ill-intention or mens rea.

The bench presided by Justice J M Malik rejected the contentions as "devoid of force" and pointed out that "a criminal case under Section 304-A of the IPC is pending against the doctors.

SBI Q1 NPAs to surge over Rs 4500 crore; restructuring to be at Rs 3000 crore

ET :13 JUL, 2012, 11.15AM IST, SIMRAN GILL,ET NOW 

Asset quality concerns linger on for the country's largest lender, State Bank of India. According to sources close to the development, SBI will see another quarter of high non-performing asset (NPA) levels, while restructuring is also expected to remain at elevated levels. 

SBI is expected to book NPAs in excess of Rs 4500 crore for the quarter ending June 30. The bank had a net NPA position of Rs 15819 crore as of March 31, 2012. 

The bank is also expected to have restructured loansworth Rs 3000 crore during the quarter. 

Two of the larger accounts - ARSS and Surya Pharma - will together contribute close to Rs 900 crore of NPAs for the bank this quarter. Corporate debt restructuring for these two accounts has already been approved but the implementation is expected to take place only in September, according to a source. 

As for restructuring, while some accounts like Bharti Shipyard and Hotel Leela are already known, other accounts include microfinance players Equitas and Spandana. A number of textile companies have also been restructured, chief among them are JCT, Pratibha Syntex and Punjab Chemicals. "Most of these accounts are performing well following the restructuring and payments have been on time," said a source close to the story. 

Another large account, Moser Baer Solar Power where banks have a total exposure of close to Rs 4000 crore is still under consideration for restructuring. 

Sectors like construction, textiles, iron and steel are still facing huge amounts of asset quality stress. According to sources, "the main point of stress has now shifted to mid-sized and small corporate clients, while down-the-line operators like road and power contractors are also feeling the pinch." 

Even so, SBI may have a better time as far as asset quality is concerned in the second quarter, with the bank expecting write-backs to the tune of Rs 1500 crore on account of upgradations and recoveries. Though the pace of NPA accretion is on the rise for SBI, the bank's top management has maintained that restructuring is more of a benefit than a drag on the bank's books. 

In a recent interview to ET NOW, the bank's chairman Pratip Chaudhuri said, "the high levels of restructuring are not worrying, since all the accounts we restructure are those that we see as capable of being nursed back to health. We have seen just 12-15 % of our restructured loans slip into the NPA category."

Canara Bank V/S Dr. T.L. Rajashekar

R.A:90/2009

1.         This Appeal impugns the order dated 9.7.2009 passed by the Learned Presiding Officer, DRT, Bangalore in OA No. 280/2008.           

2.         The case of the Appellant may be stated as follows:

The first respondent is the Proprietor of M/s Pragati Diagnostics & Pharma and the brother-in-law of the 2^nd respondent.  The third and fourth respondents are the children of the 2^nd respondent.  The first respondent availed a Term Loan of Rs.49 lakhs for purchase of machinery and equipments for its laboratory and Working Capital Limit of Rs.10 lakhs and the 2^nd, 3^rd and 4^th respondents stood as guarantors for repayment of the said loan.  The above loan is secured by the equitable mortgage of the house property owned by the 2^nd, 3^rd and 4^threspondents and the hypothecation of the equipments in the first respondent’s clinic.  Further the 2^nd, 3^rd and 4^th respondents also availed a housing loan of Rs.8 lakhs for which the first respondent stood as a guarantor.  This loan is also secured by the house property of 2^nd, 3^rd and 4^threspondents.  The respondents defaulted in the repayment and therefore the account was classified as a ‘NPA’ and the respondent bank issued the notice under Section 13(2) of the SARFAESI Act on 14.11.2007.  The respondent bank also filed OA No.280/2008 on the file of DRT Bangalore for recovery of a sum of Rs.87,63,331/- alongwith future interest and costs.  The first respondent remained ex-parte in the OA and the Respondent Nos. 2, 3 and 4 appeared and denied the execution of the guarantee and the extension of the mortgage in favour of the respondent bank.  The respondent bank filed proof affidavit with 48 documents and the respondents filed counter proof affidavit with 15 documents.  The Tribunal below by its order dated 9.7.2009 allowed the OA but held that Respondent Nos. 2, 3 and 4 are alone liable for the repayment of the Housing Loan of Rs.8 lakhs availed by them and that they are not liable for the loan availed by the 1^strespondent and also dismissed the claim against the property belonging to Respondent Nos. 2, 3 and 4.  Aggrieved by the order of the Ld. Presiding Officer of the Tribunal below dismissing the claim in the OA against Respondent Nos. 2, 3 and 4 and their property in respect of the Term Loan and Working Capital Limit the present appeal has been filed by the appellant bank.

3.         The Ld. Counsel appearing on behalf of the appellant bank stated that the Ld. Presiding Officer having found that all the defendants in the OA are liable for the credit facility availed by 1^st respondent ought to have allowed the OA against all the respondents.  The Ld. Counsel stated that the order of the Ld. Presiding Officer is perverse and therefore the impugned order is liable to be set aside.

4.         First respondent is called absent in this appeal.

5.         The Ld. Counsel appearing on behalf of Respondent No.2, 3 and 4 stated that the order of the Ld. Presiding Officer is proper and warrants no interference. 

6.         Heard the Ld. Counsel for the appellant bank and the Ld. Counsel for the Respondent Nos. 2, 3 and 4.

7.         It is seen that the Ld. Presiding Officer has arrived at the conclusion that the version of the Defendant Nos. 2, 3 and 4 seem to be capable of being believed and that their version also seems to be acceptable and believed when compared to the version of the applicant bank.  It is seen that he has arrived at this conclusion on his own assumptions without any material therefor.  A perusal of the affidavit of AW-1 and AW-2 clearly reveals that the 45 exhibits filed by them clearly establish the liability of the defendants.  It is seen that the Ld. Presiding Officer has brushed aside all the documents of the applicant bank and has proceeded to allow the OA against the Defendant Nos. 2, 3 and 4 only for the housing loan whereas the documents prove that they are also liable for the other loans too.  The Ld. Presiding Officer without any reason has stated that the version of Defendant Nos. 2, 3 and 4 has to be given more weight than the version of the applicant bank.  In fact the version of the applicant bank is fortified by the various documents which clearly point out the liability of all the defendants and in the circumstances the applicant bank’s case has to be accepted.

8.         Therefore from the fact that the Ld. Presiding Officer has proceeded to pass final orders in the OA only on the ground of his opinion that the version of the Defendant Nos. 2, 3 and 4 is capable of being believed, from the fact that that he has arrived at the decision that the case of the Defendant Nos. 2, 3 and 4 have to be given more weight when compared to the case of the applicant bank only because he has felt so, from the fact that the Ld. Presiding Officer has not properly appreciated the documents filed by the bank, from the fact that all the documents filed by the bank clearly prove the liability of the defendants for all the loans, from the fact that none of the documents help the case of the Defendant Nos. 2, 3 and 4 this Tribunal is driven to conclude that the finding of the Ld. Presiding Officer that the Defendant Nos. 2, 3 and 4 are only liable for Rs.9,11,744/- has to be set aside and proceed to hold that all the defendants are jointly and severally liable for the claim made in the OA.

9.         In the result the appeal is allowed. 

10.       The Ld. Presiding Officer, DRT Bangalore is directed to recall the Recovery Certificate issued already in this case and issue a fresh Recovery Certificate against all the defendants holding them jointly and severally liable for all the claims made in the OA.     

     This order was issued byTHE HON'BLE CHAIRPERSON  OF DRAT CHENNAI ON 04/07/2012