CBI registers case against Syndicate Bank CMD

Syndicate Bank CMD Sudhir Kumar Jain

BL :NEW DELHI, AUGUST 2: 2014

The Central Bureau of Investigation has registered a case of alleged bribery against the Chairman & Managing Director of Syndicate Bank, Sudhir Kumar Jain and 11 others including CMD & Directors of two private firms based at Delhi. Case has been registered under Prevention of Corruption Act, 1988 and criminal conspiracy.

The allegation pertains to Jain asking for bribe to extend credit facilities to certain companies. The agency also raided 20 places at 4 cities of Bangalore, Bhopal, Mumbai and Delhi. It has recovered bribe amount of Rs 50 lakhs. A senior CBI official said that cash amounting approximately Rs 21 lakh, gold worth Rs 1.68 crore and Fixed Deposit Receipts worth Rs 63 lakh found from Jain.

He also disclosed names of suspected/accused in this case which include Neeraj Singhal (Vice Chairman of Delhi based Bhushan Steel), Ved Prakash Agarwal (Chairman & Managing Director of Delhi based Prakash Industries), Vipul Agarwal (Prakash Industries), Pawan Bansal, Vineet Godha, Punit Godha, Vijay Pahuja, Pursotam Lal Totlani and Pankaj Bansal.

According to an official statement, it is alleged that the said public servant has been indulging into negotiations for illegal gratification directly as well as through middlemen for extending undue favour to private companies by granting sanction to various financial proposals. The private persons on behalf of companies and others allegedly enter into criminal conspiracy and obtain illegal gratification meant for the public servant and further deliver it to the middlemen on behalf of the public servant.

It is further alleged, that in one case, the public servant was directly negotiating with a private company for an illegal gratification of Rs. 50 lakh in lieu of granting credit extension to the said company as it had defaulted on the payment of loan installments amounting to crores of rupees to the bank. The officials of the said company allegedly agreed to pay the said illegal gratification and the money was transferred to the middlemen who are also relative of the public servant. CBI laid a trap and recovered the illegal gratification of Rs. 50 lakh on the spot after the said delivery was made.

Jain assumed charge as CMD of the bank on July 8 last year. He has been in banking industry for 26 years.

(This article was published on August 2, 2014)

Union of India & Ors. Vs. Debts Recovery Tribunal Bar Association & ANR.

  THANKS Ashpreet Sethi

Union of India & Ors. Vs. Debts Recovery Tribunal Bar Association & ANR.

[Civil Appeal Nos.617-618 of 2013 arising out of SLP (C) Nos. 22808-22809 of 2010]

O R D E R

1. Leave granted.

2. These appeals arise out of judgment dated 18th September 2008 in CWP No. 11742 of 2007, and order dated 21st August 2009 in Review Application 161 of 2009, rendered by the High Court of Punjab & Haryana, whereby certain directions relating to provision for adequate space for the smooth functioning of the Debts Recovery Tribunals (for short "the DRTs") at Chandigarh, have been issued. The circumstances that have led to the filing of these appeals are succinctly stated below.

3. A Bench of the DRT was established at Chandigarh by the Union of India (for short "the UOI"), vide notification dated 24th March 2000, in a rented building. Subsequently, a second Bench of the DRT was established, which was supposed to function from another premises. However, both the Benches continued to function from the same premises where the earlier Bench was functioning. By a communication dated 20th July, 2007, the UOI directed that the second Bench would function from the premises acquired for it. Thereupon, the respondent Bar Association made a representation to the Presiding Officers of both the Benches, requesting them to inter alia, continue to function from the premises from where the first DRT was functioning. However, in light of the aforesaid communication issued by the UOI, the request of the Bar Association was not acceded to.

4. Aggrieved, the Bar Association filed a Civil Writ Petition in the High Court of Punjab & Haryana, seeking directions to the UOI, to inter alia provide adequate accommodation for the functioning of both the DRTs; and to frame Rules for recruitment/appointment of the Presiding Officer & the Recovery Officers. In light of the assurance on behalf of the UOI that adequate space would be taken on lease for the smooth functioning of both the Benches at the same place, and that further, land was also being acquired for housing the DRTs, the writ petition was disposed of with a direction that the construction of the building shall be completed within three years from the date of its order. However, the High Court did not examine the other issues referred to above on the ground that they were unrelated to the inadequacy of office space needed by the DRTs.

5. Having failed to get the said order reviewed, the UOI is before us in these appeals. In order to appreciate the issue involved in the matter before us, it would be useful to have a bird's eye view of the constitution of DRTs and their functioning.

6. Prior to the promulgation of the Recovery of Debts Due to Banking and Financial Institutions Act, 1993 (for short "the RDDBFI Act"), all banks and financial institutions were required to file their recovery cases in the form of suits before the civil courts, on the basis of their territorial and pecuniary jurisdictions. Due to delays in the disposal of such suits by civil courts on account of heavy dockets, the recovery of loans and enforcement of securities suffered. Thus, an urgent need was felt to work out a suitable mechanism through which, the dues of the banks and financial institutions could be realized expeditiously. This led to the establishment of DRTs and the Debts Recovery Appellate Tribunals (for short "DRATs") under the RDDBFI Act for expeditious adjudication and recovery of debts due to banks and financial institutions.

7. As per the information available, there are all in all 33 DRTs established in the entire country out of which Delhi, Mumbai, Chennai, Kolkata, Chandigarh and Ahmedabad have two or more DRTs each. However, there are only five DRATs, established in Allahabad, Chennai, Delhi, Kolkata and Mumbai, each covering multiple DRTs of a particular geographical zone. As a result, DRATs are overburdened and are also facing an acute shortage of infrastructure and staff.

8. Given the poor state of affairs as highlighted by the Bar Association, we were constrained to take cognizance and hence, vide order dated 15th November 2010, directed the learned Addl. Solicitor General to file an affidavit suggesting measures for improving the working of the said Tribunals. Subsequently, on 7th April 2011, this Court appointed Mr. Rajeeve Mehra, Senior Advocate, as amicus curiae to assist the Court. Consequently, having considered the views of all DRTs, DRATs as well as the Bar Associations, the learned Addl. Solicitor General and the learned amicus curiae have filed their responses, highlighting the core issues and respective suggestions to address the same. In light of the above, the UOI was directed to place on record their response on the issues so raised, in particular, on the criteria being adopted for appointment of the members, Recovery Officers etc. In pursuance thereof, the UOI has filed status reports, indicating the measures agreed upon by the Government to address the aforementioned issues. Before we proceed to list the same, it would be helpful to discuss the core issues in respect of which the suggestions have been made.

9. At present, DRTs and DRATs suffer from severe infrastructural constraints. Most of the DRTs are being run from rented premises and face acute shortage of space, exorbitant rents, limitations on non- renewal/extension of leases etc. It has been brought to our notice that where the DRTs have been allotted space of about 5000 sq. ft., the actual requirement is not less than 7,500 sq. ft. Similarly, the learned amicus curiae brought to the fore several other issues plaguing the smooth functioning of the Tribunals, the most significant being: that there is a need to increase the number of DRATs in the country to reduce the workload of the existing DRATs; that many serving Recovery Officers lack a judicial background or are appointed on deputation from those very banks or financial institutions which are filing recovery cases in DRTs, thereby raising serious questions about their independence, impartiality and fairness; that the time taken in filling up vacancies for the posts of senior officials of DRTs and DRATs is extremely long; and that the presence of modern and technological systems of administration continues to be elusive in the administration of justice in as much as many DRTs and DRATs do not even have websites or computerized systems. Suggestions made by the learned Addl. Solicitor General and learned amicus curiae S. Issue Suggestions of the Suggestions of the No learned Addl. learned amicus Solicitor General curiae

1. Premises & All DRTs and DRATs Concurring Physical should be housed in Infrastructure suitable buildings. Pending construction of these buildings, the Tribunals should be housed in rented premises having an area of at least 8000 sq.ft. where suitable space for records, etc. and amenities for the officers of the court, staff, litigants and lawyers should be provided.

2. Increase in A DRAT must be Number of established in each DRTs/DRATs state where there --- is a DRT or multiple DRTs. DRATs may be established in the city where the concerned High Court of a State is located.

3. Appointment of Qualifications for Appointment of Recovery Officers Recovery Officers Recovery Officers should include at by way of the very least, a deputation from basic degree in law. Government If possible, Departments/Ministr judicial officers or ies, Banks and advocates with five Financial years standing at Institutions should the Bar may be be discontinued. Appointed as Instead, the person Recovery Officers. appointed must be a person of a judicial background, preferably a judicial officer of the rank below the designation of Addl. District and Sessions Judge on deputation, and should be given the same facilities and perks he/she enjoys in the parent cadre.

4. Vacancies and A select list of

a. For posts other Status of Senior candidates should be than Presiding Officers of maintained to fill Officers and DRTs/DRATs the vacancies. The Recovery Officers, selections should be on-going process of made within a fixed sourcing time frame. Staff/officers on deputation should be discontinued, and permanent cadres should be established.

b. The post of Presiding Officers, Registrars and Recovery Officers should be filled up from the state cadre of Judicial Officers through deputations and rotations so that these posts do not remain vacant.

c. Judicial officers must be provided the same facilities and perks as they enjoy in their parent cadres. Further, residential accommodation must be necessarily earmarked for Presiding Officers.

5. Information DRTs and DRATs must Concurring Technology and have a website. Computerisation Possibility of publication of notices and auctions on the website should be explored, keeping necessary safeguards in mind. The National Informatics Centre should be called upon to prepare appropriate software for computerization of processes in the DRTs, from filing to disposal, so that the time taken for disposal is reduced.

10. We are pleased to note the positive and forthcoming response of the UOI to the suggestions of the learned Addl. Solicitor General and the learned amicus curiae. Having taken note of the urgent need to address the abject conditions prevailing in the Tribunals, the UOI, has agreed to: i. Provide adequate infrastructure to DRTs/DRATs on the following basis:

a. If sufficient space as per requirement is available in the Government building, then space from the concerned department will be allotted on a permanent basis.

b. If space is not available in the Government building but sufficient space is available in public sector undertakings' buildings, then the DRTs/DRATs may move to the same on a permanent lease/rental basis.

c. If (a) and (b) are not possible, then suitable land may be purchased for construction of a building, or a suitably constructed building may be purchased from public authorities. This may be completed in a phased manner. In the mean time, DRTs and DRATs may continue at their present locations or hire alternative suitable space as per norms.

d. Further, on the basis of a spot study conducted by the Department of Financial Services on 11th December 2011, the existing space authorization of 5000 sq. ft. for DRTs and 3600 sq. ft. for DRATs was examined. In light of the study and requirements of additional facilities, the same has been increased to 7200 sq. ft. and 4500 sq. ft. respectively.

In case more than one DRT is accommodated in one building, space would be saved for common facilities such as bar room, consultation chamber, reception, canteen, washrooms, etc. In such a case, the space requirements for the second and third DRT (if located in the same building) may be around 6000 sq. ft. and 5500 sq. ft. respectively.

e. Preference is to be given to buildings where parking facility is provided either within the building premises or in the vicinity.

ii. Consider the feasibility of establishing more DRTs/DRATs and redefining the jurisdiction of some DRTs on the basis of data showing pendency of cases and existing workload of all the DRTs and DRATs.

iii. Fill all anticipated vacancies for the posts of senior officers, as and when they arise, with candidates who have already been selected according to the stipulated rules.

iv. Extend the facility of General Pool of Accommodation of the type entitled to Group A officers upto April 2013 to the Presiding Officers. In the meantime, the Ministry of Finance and Ministry of Urban Development will examine all issues to finalise modalities for either buying or construction of flats/houses for use of the members of the Tribunals. Further, in case this proposal does not materialize, then the possibility of hiring accommodation shall be considered at the appropriate stage. v. Implement the "e-DRT Project" to automate and improve DRT services by building IT systems as expeditiously as possible. vi. Carry out the recruitment of Recovery Officers by promotion, failing which, by deputation, in accordance with the eligibility criteria as defined in the recruitment rules of each DRT. Keeping in mind the profile of the post of a Recovery Officer, it may not be possible to appoint judicial officers of a rank below that of an Additional District and Sessions Judge, as suggested by the learned amicus curiae.

However, the UOI shall give preference to only those candidates who either have legal experience or hold a degree in law. Further, with respect to improving the selection procedure of Recovery Officers, the Departmental Promotion Committee (DPC), provided for in the recruitment rules, shall be expanded to include the Presiding Officer of any DRT as a member of the DPC to take part in the selection of the Recovery Officers. At the same time, the level of representation of the Reserve Bank of India in the DPC will also be raised from the rank of Deputy Legal Advisor to Joint Legal Advisor, RBI. vii. Hold regular training programmes for Recovery Officers/Assistant Registrars/Registrars to give them minimum working knowledge of the procedures followed in DRTs, the provisions of the RDDBFI Act, the SARFAESI Act, the Rules made there under, and the provisions of Schedules II and III of the Income Tax Act, 1961.

11. We are confident that the aforementioned measures proposed by the UOI, shall go a long way in improving the administration of justice in these Tribunals. We are in agreement with these proposals and hope that they will be implemented efficiently and expeditiously by the concerned authorities. Having said that, it is necessary that the exercise undertaken by this Court must reach its logical end sans any delays and glitches or any other hindrances in the implementation of these suggestions. To this effect, we issue the following directions:

i. All the aforementioned proposals and measures agreed upon by the UOI in response to the suggestions made by the learned amicus curiae and the Addl. Solicitor General shall be implemented expeditiously within a suitable time frame. In the event that the UOI or the concerned authority fails to comply with the aforesaid assurances, it will be open to the learned amicus curiae to bring the same to this Court's notice for appropriate directions.

ii. Further, we believe that the High Courts are empowered to exercise their jurisdiction of superintendence under Article 227 of the Constitution of India in order to oversee the functioning of the DRTs and DRATs. Section 18 of the RDDBFI Act leaves no scope for doubt in this behalf. It reads thus:

18. Bar of Jurisdiction.-On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17. Article 227 of the Constitution stipulates that every High Court shall have superintendence over all courts and tribunals throughout the territories interrelation to which it exercises jurisdiction.

This power of superintendence also extends to the administrative functioning of these courts and tribunals [Shalini Shyam Shetty & Anr. Vs. Rajendra Shankar Patil[1]]. Hence, in light of the above, we expect that all the High Courts shall keep a close watch on the functioning of DRTs and DRAT, which fall within their respective jurisdictions. The High Courts shall ensure a smooth, efficient and transparent working of the said Tribunals. We are confident that through the timely and appropriate superintendence of the High Courts, the Tribunals shall adhere to the rigour of appropriate standards indispensable to the fair and efficient administration of justice.

12. Before parting, we place on record our deep appreciation for the able assistance rendered to us by Mr. Sidharth Luthra, the learned Addl. Solicitor General, Mr. Rajeeve Mehra, the learned amicus curiae and Mr. Arjun Kapoor, Law Clerk-cum-Research Assistant.

13. These appeals stand disposed of in the above terms.

.................................J. (D.K. JAIN)

.................................J. (H.L. DATTU)

Vijay Mallya appears in special court, gets bail

FP 31 July 14

Vijay Mallya, chairman of Kingfisher Airlines, on Thursday got a bail on a surety of Rs 3 lakh and a guarantor from the Special Economic Offences Court in Bangalore in three  income tax cases against the grounded airline for not having remitted tax deducted at source (TDS)  worth around Rs 260 crore with the authorities for financial years 2009-10, 2010-11 and 2011-12.

The special Judge granted Mallya bail  in all three cases  but asked him to furnish  Rs 1-lakh cash and solvent surety each in all cases.

“Mallya is not likely to co-operate … He is a non-resident Indian, frequently travelling abroad … (he is) likely to sabotage the trial as he is an influential businessman …,” the I-T Department counsel was quoted as saying inThe Hindu BusinessLine.

He also expressed apprehensions that Mallya was likely to sabotage the trial as he is an "influential businessman with enormous clout."

Mallya had sought exemption from personal appearance before the court after he was served summons in cases filed by the IT department which pertains to the airline's failure to remit TDS for three consecutive financial years beginning 2009-10.

The department had claimed a TDS (tax deducted at source) due of around Rs 400 crore from the airline, which is disputing the quantum of the tax demand. The cases were filed against the airline and Mallya for not remitting TDS.

The Bangalore police had served summons to the airline and Mallya on April 1, more than a year after the IT department filed the cases before the special court. In March this year, the court had ordered a show cause notice to the city police for their repeated failure to serve the summons.

Meanwhile, The Hindu BusinessLine photographer, GRN Somashekhar,  who was covering  Mallya’s appearance in a Bangalore court, was assaulted with a helmet by a few unidentified persons.

According to a Times of India report, "a man dressed in a black coat and another unknown person approached five photographers and one TV channel woman reporter, asking them to leave the court premises. When Mallya came out of the court building, the miscreants hurled abuses at the woman reporter and hit a photographer of a business daily on the head with a helmet."

The Hindu 1 Aug 14

Kingfisher Airlines head Vijay Mallya on Thursday personally appeared before the Special Court for Economic Offences in Bangalore, in connection with three criminal cases booked against him by the Income Tax Department for not remitting around Rs. 400 crore tax deducted at source (TDS) to the government.

The court granted him bail while directing him to deposit Rs. 1 lakh as cash surety in each case, bail bonds and solvent surety for the same sum. He was also directed to cooperate in the trial.

Mr. Mallya appeared before the court at 11 a.m. and the judge of the Special Court adjourned hearing of his bail plea to 3 p.m. and asked the counsel for the I-T Department to file objections. “Mr. Mallya is not likely to cooperate with proceedings… He is a non-resident Indian, frequently travelling abroad, and therefore there is a likelihood of him not cooperating with the trial and likely to sabotage the trial as he is an influential businessman having enormous clout…,” the I-T Department said in its objection filed through his counsel Jeevan J. Neeralgi.Mr. Mallya, who came back to the court around 3 p.m., left at around 6 p.m. after signing the bail papers.

The summons was first issued to him in February 2013 after the I-T Department lodged the first of its three complaints.

However, the Bangalore City Police failed to serve summons citing one or the other reason on several occasions, despite issuance of repeated summons.

Finally, lawyers representing him appeared before the Special Court in April 2014 after the Karnataka High Court, in January 2014, refused to interfere with the criminal cases. The proceedings before the Special Court were stayed from August 2013 to January 2014 in view of the interim order passed by the High Court earlier.

The I-T Department had filed three cases during February-March 2013 after the company failed to remit TDS amount for the financial years 2009-10, 2010-11 and 2011-12.

‘RBI must permit second restructuring of debt’

Nirmagangwal  Brescon Corporate MD

Will help India Inc, banks tackle the problem of bad loans, says Brescon Corporate MD

Due to the economic slowdown in the last five years, the Reserve Bank of India will do well to throw a line to India Inc and banks so that the problem of bad loans can be tackled, says Nirmal Gangwal, Founder & Managing Director of corporate debt restructuring advisory firm, Brescon Corporate Advisors.

In this regard, Gangwal, who took the plunge into the advisory business in 2000 after successfully restructuring his leasing and hire-purchase firm, feels the time is ripe for the central bank to allow a one-time dispensation for second-time debt restructuring and relaxation in the rule relating to provisioning.

In an interview with Business Line, the CDR expert with triple professional qualifications, says business failure should not be considered a stigma. Further, to mitigate the problem of bad loans, banks should invest more time and money to understand the risks before lending money. Excerpts:

How will the RBI’s framework to revitalise distressed assets in the economy help banks and their borrowers?

The framework is a very bold and constructive move by the regulator and will go a long way in tackling distressed assets in the banking system.

Earlier bankers were under no time pressure to act (on the requests for debt restructuring). Banks took more time to take decisions on restructuring. In the process, six to nine months were wasted and clients’ operations suffered. The borrower was using all the working capital to service the loan.

Now under the new guidelines, if the client puts in a request, banks have to respond and the RBI has put the onus on the bank. If it gets a request for debt restructuring, the bank has to give the borrower a response within 30 days by forming a Joint Lenders’ Forum (JLF).

In the JLF, the problem has to be discussed by bankers and a solution found.

If 75 per cent of the banks in the consortium of lenders agree to the solution and 25 per cent don’t agree, then the latter’s loan exposure will become non-performing.

So there is now a clear-cut disincentive for not acting. So that will exert pressure on the banking system and accountability will increase because of that.

What the RBI is saying is that either accept the borrower’s restructuring request or reject it. So banks cannot sit on the request…

Earlier banks managed up to 90 days delay (in loan re-payment). But now when there is a 30-day delay, they have to report it under the new framework. The system has been in place from April 1. Almost 20 to 30 large accounts (iron & steel, infrastructure and textile) are already being processed under the new framework.

Will the number of cases referred to the Corporate Debt Restructuring (CDR) cell come down as the JLF becomes active?

JLF is a forum where bankers can restructure an account themselves if they come to an agreement. They need not go for CDR. In some cases where there is no consensus, they can refer the case to the CDR which is a larger body. So the number of cases that will be referred for CDR will come down.

In India we despise failures. Failure in business is a stigma in our country whereas in the US and Europe, it is not. In business you cannot be successful all the time. Because of the stigma associated with business failure, going for CDR is also perceived as a stigma.

So if the corporates can avoid CDR, they will try to resolve their debt woes before the account is classified ‘Special Mention Account 2’ (where the principal or interest payment is overdue between 61-180 days) by banks.

What more can the regulator do to streamline the CDR process?

Frankly, when it comes to CDR, due to the extraordinary economic situation, they have to permit second restructuring to keep the asset classification standard just like the one-time dispensation the RBI gave in 2009. They should do this time also. Ultimately, this is a systemic problem, which calls for a one-time relief across sectors. In fact in 2009, the one-time dispensation was not so necessary because corporates had a lot more cash, which was generated from 2005 to 2008. But now we have seen that for five years the country has been impacted by economic downturn.

There are very draconian conditions for exit from CDR. For example if my loan is ₹500 crore and I have re-paid ₹500 crore and want to exit CDR, then according to the current guidelines, the right of recompense could be equivalent to ₹500 crore. This is like profiteering.

Suppose banks were charging 14 per cent interest on a loan before restructuring but reduce it to 12 per cent after restructuring. The maximum recompense you can charge is the 2 per cent difference. But under the CDR guidelines, there is a formula where the difference will work out to 5 per cent (as lenders could have lent at their benchmark lending rate plus risk premium plus tenor premium making the lending rate 17 per cent) over the last 10 years.

Rather, if the difference (for calculating the right of recompense) is no more than three per cent, then companies will get out of CDR faster. So the right of recompense is very adverse; it doesn’t give any incentive to perform.

The net present value (NPV) loss provision calculation when it comes to CDR is faulty. Suppose my loan carries 14 per cent interest but is reduced to 12 per cent under restructuring, the NPV loss is not calculated as the difference between 14 per cent and 12 per cent, but between 17 per cent and 12 per cent.

As the NPV of the revised cash flows will be much lower, banks have to take a higher hit on their P&L account. So banks don’t do good restructuring. They tend to charge higher interest rate and charge other fees here and there. This should not happen.

Given the economic slowdown, will there be more requests for debt restructuring from India Inc?

No, I don’t think so. Some debt restructuring cases could come up for another two to three quarters. Thereafter, there will be a substantial reduction in restructuring cases.

The RBI recently brought in clarity by way of revision (extension of time) in the date of commencement of commercial operations for project loans. I am sure the asset classification of large infrastructure projects will be preserved under the guidelines.

So within the extended time period, if there are multiple changes and multiple restructuring, the account will not be an NPA.

This has given great relief to some large infrastructure projects which are stalled. This will give a great relief to the power sector and the banking system.

A better way to manage NPAs

BL  Sidharth Birla 1 Aug 14

Mechanisms to deal with stressed assets need a relook. A national asset management company would help

Prolonged slow growth has adversely affected India’s financial sector. The banking system is sitting on a pile of stressed assets which, if not checked, will snowball into a larger problem. As of December 31, 2013, gross NPAs had reached 4.4 per cent of total loans in the banking system, with public sector banks such as the State Bank of India (SBI) reporting much higher levels (over 6 per cent).

If restructured loans are added, stressed assets are estimated at around 15 per cent of bank loans. Of the total stressed assets, the industrial sector (especially infrastructure) accounts for the largest stock of NPAs.

Restoring the capex cycle is essential for economic recovery. This will not be possible without restoring the health of the banking system.

Given the present levels of impaired assets in banks’ balance sheets and future credit requirements, Indian banks require capitalisation of about ₹5-10 trillion over the next five years.

Present system ineffective

The requirement is especially worrisome for government-owned banks: they account for over 70 per cent of total banking assets. Reduction in impaired assets helps lower the capitalisation burden to an extent.

Thus, finding a solution for faster recovery and/or rehabilitation of stressed assets is critical.

Despite the presence of an established legal and regulatory framework for resolution of stressed assets, the existing system doesn’t seem to be working effectively. There are 14 registered asset reconstruction companies (ARCs) in India, of which four are active.

However, the process of removing stressed assets from banks to ARCs is inefficient and ARCs have not been successful in quick recovery/rehabilitation. Despite a significant rise in NPAs over the last five years, the sale of stressed assets (in value terms) to ARCs has remained more or less stagnant.

Banks are under no pressure to clean up NPAs and thus they prefer to roll over debt rather than recognise an NPA and mark it down to its realisable value.

Lately, the pressure to build books has forced ARCs to make unrealistic valuations; the average acquisition price over the past 12 months has soared to 60 per cent of book value as against 25 per cent earlier, with over 90 per cent of transaction value being paid through security receipts (SRs). As a result, the secondary market for these assets has failed to take off.

Look at the specific issue

Quick recovery by ARCs is also affected by inadequate capital and inability to aggregate consortium debt. Moreover, the unrealistic pricing of underlying NPAs has kept foreign investors at bay, despite the Government allowing foreign investors to hold up to 74 per cent of the share capital of an ARC. No wonder, over 90 per cent of SRs are currently held by the selling banks, as most of these ARCs are bank-sponsored.

An effective resolution of stressed assets thus requires looking beyond the existing system and addressing the specific nature of the problem through a specialised ARC framework. A review of international experience in this regard reveals some common underlying principles in the approach towards the resolution of NPAs by most countries, regardless of different models being adopted.

The research reveals several things. First, it is much better, less expensive and less disruptive to establish a specialised AMC prior to a financial crisis as was done in the case of Malaysia and Taiwan. Establishing an AMC once the crisis has occurred results in the shrinkage of economy, and the process of recovery is longer and more painful.

Second, in most cases, direct government funding or government guaranteed bonds were used to inject the capital required for clearing a bulk of the NPAs, which was done through their one-time transfer from banks to the AMC.

Third, the successful AMCs had one core objective: the rehabilitation and restructuring of viable assets. Additional funding mechanisms were put in place for meeting working capital requirements of the AMCs for rehabilitation of viable projects. Finally, another common feature of successful AMCs globally has been fair valuation in asset pricing, which contributed in building investor interest and developing a secondary market for such assets.

Managing the assets

Based on these experiences, Ficci has suggested the creation of a specialised entity called the National Asset Management Company (Namco) to effectively tackle large NPAs in India. The proposed Namco framework is unique because it requires Government/RBI sponsorship but no capital injection or guarantees.

The Government shall encourage public sector banks (PSBs) to take up to 49.9 per cent equity in this entity and transfer large-scale stressed assets to it. The selling banks will agree to provide up to 25 per cent of the sale price as additional last-mile funding, for rehabilitation or completion, if required. No new legislation is required; some modifications would have to be made to existing regulations.

Namco’s focus would be on the rehabilitation of large-scale NPAs, restructured loans and other potential stressed assets, mainly in the infrastructure sector. Given the long-term nature of underlying assets, such specialised entities will be allowed to issue SRs with a tenor of up to 12 years. To encourage greater investor participation, Ficci has suggested the transfer of stressed assets at fair market value, determined by an independent valuer.

Given the importance of restoring the health of the banking system for supporting economic revival, the Government and the RBI should facilitate the creation of Namco by taking necessary administrative steps in this regard.

A pro-active, preventive approach is desirable if we have to ensure speedy revival of the economy. Of course, this should be a time-bound and close-ended framework to improve the overall hygiene of the system.

The writer is the president of Ficci

All India Bar Association opposes governor posts for former judges

A Subramani, TNN | Jul 29, 2014, 04.24PM IST

CHENNAI: The All India Bar Association (AIBA) has opposed the move to appoint former judges of the Supreme Court to political offices such as governor posts. 

Decrying former judges lobbying for political positions and referring to media reports that former Chief Justice of India P Sathasivam, who retired in April this year, is being considered for the gubernatorial assignment, AIBA chairman and senior advocate Adish C Aggarwala wrote to Prime Minister Narendra Modi saying such "unprecedented proposal has created anxiety in the minds of jurists, lawyers and judges alike." 

He said neither the former CJI nor the government had clarified the issue thus far.

Ex-judges could be considered only for judicial offices such as Lok Pal and National Human Rights Commission (NHRC), AIBA said, adding that such adjudicatory functions would be befitting the stature of judges, more so because the appointment would be apolitical and not at the pleasure of the government. 

As for Justice Sathasiam, his vast experience on the judicial side could be so utilized for "common good," Aggarwala said. 

"Justice Sathasivam has also publicly declared that he is open to accepting any position befitting the stature of a former CJI, including the chairmanship of National Human Rights Commission or Lok Pal if the new government makes an offer," the AIBA representation said. 

However, the association welcomed the reported move to appoint senior advocates Soli Sorabjee and M N Krishnamani as governors saying they were doyens of the legal profession and known for their acumen and high standard of ethics. 

It’s time to amend law on contempt of court

Monday, 28 July 2014

The present law of contempt of court in India is a hangover of the original law on this subject in England. This originated from an undelivered judgment of J Wilmot in 1765, where the judge said the power of contempt of court was necessary to maintain the dignity and majesty of judges and vindicate their authority.

But whence comes this dignity and authority of judges? In England, in feudal times, it came from the king, who was the fountain of justice, and would often decide cases himself. Later, when he had many other duties, he delegated judicial functions to his delegates, who were called judges. Thus, in a monarchy, the judge really exercises the delegated function of the king, and for this he requires the dignity, authority and majesty which a king must have, to secure obedience.

In feudal times, the king was supreme, and the people were his subjects. They could not criticize him, and such criticism was punishable.

In a democracy, however, this relationship is reversed. Now it is the people who are supreme (see Rousseau’s ‘Social Contract’), and all state authorities, including judges, are nothing but their servants.

Hence in a democracy there is no need for judges to vindicate their authority or display pomp and majesty. Their authority comes not from fear of contempt but from the public confidence, and this in turn depends on their own conduct, integrity, impartiality, and learning.

This view is accepted now even in England. As observed by Lord Salmon in AG vs Bbb (1981) A.C. 303, “The description contempt of court no doubt has a historical basis, but it is nevertheless misleading. Its object is not to protect the dignity of the court, but to protect the administration of justice”.

“Justice is not a cloistered virtue,” said Lord Atkin. “It must suffer the scrutiny and outspoken comments of ordinary men”.

In R. Vs. Commr. of Police (1968) 2 QB 150 Lord Denning observed, “Let me say at once that we will never use this jurisdiction to uphold our own dignity. That must rest on surer foundations. Nor will we use it to suppress those who speak against us. We do not fear criticism, nor do we resent it. For there is something far more important at stake. It is no less than freedom of speech itself…All that we ask is that those who criticize us should remember that, from the nature of our duties, we cannot reply to their criticism. We cannot enter into public controversy. We must rely on our conduct itself to be its own vindication”.

Sometimes an upright judge is unjustifiably criticized. The best course of action for such a judge is to ignore baseless criticism (but pay heed to honest and correct criticism). He should have broad enough shoulders to shrug off baseless comments without getting perturbed or influenced.

Once a British newspaper ran a banner headline calling the majority judges of the House of Lords who decided the Spycatcher case ( Attorney General vs. Guardian Newspaper, 1987 3 AllE.R.316) “YOU FOOLS”. Fali Nariman, who was present in England at that time, asked Lord Templeman, who was one of the majority, why the Judges did not take contempt action. Lord Templeman smiled, and said that judges in England took no notice of personal insults. Although he did not regard himself as a fool, others were entitled to their opinion.

In Balogh vs Crown Court at Albon (1975) AC 373, the defendant told the Judge “You are a humourless automaton. Why don’t you self destruct?”. The judge smiled, but took no action.

Now coming to the law of contempt in India, we find it is uncertain. Nariman described it in a speech as ‘Dog’s Law’.

He quoted Bentham, who said that when a dog does something nasty we beat him for it. Similarly, the laws in England become known only when someone is punished by the courts. The same is true about the law of contempt in India, and thus it is a standing threat to freedom of speech.

To illustrate, in Duda’s case AIR 1988 SC 1208, a Union Cabinet minister said that the Supreme Court sympathized with zamindars and bank magnates.

He further said, “FERA violators, bride burners, and a whole horde of reactionaries have found their haven in the Supreme Court” and that Supreme Court judges have “unconcealed sympathy for the haves”. No action was taken against him. Nariman asked whether if such a comment had been made by an ordinary man the court would have taken no action.

Moreover, in an earlier decision, in the case of Namboodiripad (former CM of Kerala), who accused Supreme Court judges of being biased in favour of the rich, (an allegation similar to that of the Union minister in Duda’s case) the court convicted Namboodiripad for contempt (AIR 1770 2015). Where is the certainty or consistency in the law ?

We have two provisions in our Constitution, Article 19(1)(a) which gives citizens freedom of speech, and Articles 129 and 215 which give the Supreme Court and High Court the power of contempt. How are these provisions to be reconciled. In my opinion, since Article 19(1)(a) is the right of the people who are supreme in a democracy, while Articles 129 and 215 are powers of judges, who are servants of the people, the reconciliation can only be done by holding that freedom of speech is primary, while the contempt power is only secondary.

It follows that the contempt power cannot be exercised because people are criticizing a judge. It can only be exercised if someone makes the functioning of the judge impossible eg if while a judge is hearing a case someone jumps on to the dias and tries to run away with the court file, or if he attacks or threatens a witness.

If someone calls a judge a fool inside the courtroom and goes away, in my opinion it is not contempt, for he has not stopped the functioning of the court.

But if he keeps shouting in court the whole day, and despite warning does not stop, he is obviously not letting the court function, and this would be contempt. After all disputes in society have to be adjudicated, and judges must decide cases to justify payment of salaries to them.

I submit that the time has come now for Parliament, the judiciary and others concerned to take a fresh look at the law of contempt of court in the light of what I have said above, and bring about necessary amendments.

(Published in The Times of India on 28/07/2014)