Calcutta High Court's 'No' to Vijay Mallya's plea gives loan recovery a push

 

 Atmadip Ray & Anuradha Himatsingka, ET Bureau | 12 Jul, 2014, 01.28AM IST 

Bankers fighting to recover dues from big defaulters have got a boost with the Calcutta High Court dismissingKingfisher Airlineschairman Vijay Mallya's petition against United Bank ofIndia's move to label him a 'wilful defaulter' and start recovery proceeding

Justice Dipankar Dutta of the high court, in his ruling on July 10, also rejectedKingfisherAirlines' plea to send an external legal practitioner to appear before the grievance redressal committee of United Bank of India (UBI). UBI had earlier served Mallya with a notice, asking him and three other directors of Kingfisher Airlines to appear before its grievance panel on July 9.

Kingfisher Airline has Rs 350 crore to pay to UBI while its total banking exposure is more than Rs 6,400 crore. Bankers are hopeful this ruling will set a precedent in their fight against big defaulters. "Justice Dipankar Dutta has given a positive judgment and banks' concerns have been rightly addressed," said Deepak Narang, executive director, UBI. "The judgment will be a guiding principle for the entire banking industry in the time to come," he added.

Top 50 defaulters in the country accounted for about Rs 40,500 crore of non-performing assets, or NPAs, of Indian banks, according to a recent study by All India Bank Employees' Association (AIBEA). Legal fraternity said Indian courts nowadays rule in favour of banks in such cases unless there are technical lapses or procedural failures committed by bank officials. "Courts have been coming down heavily on defaulters for some time now," said advocate Rana Mukherjee, who practises in the Supreme Court. "But I feel they should be more stringent in their approach and freeze the moveable or non-moveable assets at the first instance before hearing the defence of the defaulter."

The Karnataka High Court in December last year had dismissed a petition by Kingfisher Airlines challenging the move of a consortium of its lenders to take possession of 'Kingfisher House' property in Mumbai to realise part of the Rs 6,400-crore dues.

In another verdict on February 14, the same high court had refused to interfere in the proceedings initiated by the lenders against Mallya and his companies UB (Holdings) Ltdand Kingfisher Airlines Ltdbefore the Debt Recovery Tribunal (DRT) in Bangalore.

As of March 2014, non-performing assets ratio for the entire banking sector was as high as 4.4%. Public sector banks had NPAs of Rs 1.23 lakh crore as of March 2013. While bad loans have been rising recently on account of sagging economic activities that hit companies' cash flows, some borrowers have also been misusing the banking system despite having the capacity to pay.

Lenders have begun a war against such wilful defaulters, prodded by Reserve Bank of India governor Raghuram Rajan

Lawyers said that in bad loan cases, laws favour the lenders. "While the courts may have been taking a broader view on cases where it has perceived that the borrowers have misused their position or have willfully defaulted, the lending terms nowadays are fairly robust protecting the banks in a default scenario," said Shishir Mehta, partner at Khaitan & Co.

The Madras High Court in May dismissed writ petitions filed by various companies and individuals, including Deccan Chronicle Holdings and Marg Ltdchallenging the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and the guidelines issued by the banking regulator on the classification of NPAs.