The proposed budget for the 2021-22 fiscal year has nothing much about the much-ballyhooed reforms in the financial sector, except for a paragraph on updating five laws.
One of them is the Bankruptcy Act, amendment to which is deemed crucial by legal experts to clear backlogs of financial disputes.
But the reform progresses at a snail's pace.
About 179 bankruptcy cases are currently under trial in bankruptcy courts across the country while banks have about Tk2,600 crore stuck in these cases due to slow disposal, sources in the Supreme Court and the Bangladesh Bank say.
Since the bankruptcy act was enacted in 1997, about 638 cases have so far been filed against various individuals and companies. From January 2016 to December 2020, 11 cases were filed, but only two cases were disposed of.
Supreme Court sources said only one company was declared bankrupt among the cases disposed of in the last 10 years. All the other cases that were disposed of were filed against individual defaulters.
The work on amending the bankruptcy act was initiated back in 2017. The Bangladesh Bank in December that year prepared a draft amendment, which was sent to the finance ministry.
After almost three years, the ministry put the draft on its website seeking opinions from stakeholders. There has been no progress since then, ministry officials said.
"Steps have been taken to reform the law," the finance minister said in his budget speech on Thursday.
Bankruptcy saves the day for defaulters
Readymade garment factory Apurna-Zahid Fashion Limited in the capital's Mirpur failed to repay Tk48 crore loans to Agrani Bank's Motijheel Corporate branch and Pubali Bank's Mirpur branch. Its Managing Director Zahidul Islam submitted a petition to Dhaka's bankruptcy court in August 2000 to declare the company bankrupt.
Two months before that, the company was wound up when business slumped and bank debts piled up. It was entirely an export-dependent company. Before the company was wound up, the two banks had filed multiple cases with a Dhaka court to recover the loans.
Legal officials at the banks' head offices told The Business Standard the company owes Agrani Bank Tk29 crore and Pubali Bank Tk19 crore, including principal amount and interest. The loans were given based on the organisation's capital.
They said the banks had filed the cases when the company defaulted in 2000. But Zahidul filed the bankruptcy petition as the company was wound up and unable to repay the loans. 20 years have passed since then but the company has not yet been declared bankrupt.
Agrani Bank lawyer Mir Shawkat Hossain said if Apurna-Zahid Fashion is declared bankrupt, the two banks would be the owners of all the movable and immovable assets of Zahidul.
"The banks will sell those and that will be the only amount they will get."
Two years after Zahidul filed the bankruptcy petition, the hearing began, with the last one held in 2016. He did not appear in court even though several hearings were scheduled thereafter.
Shawkat said the additional district judge's court or the additional metropolitan judge's court is tasked with conducting bankruptcy cases.
"As these courts deal with many civil cases, they do not prioritise bankruptcy suits. On the other hand, individuals or companies involved in bankruptcy suits defer attending hearings using various tactics. As a result, cases are not disposed of fast."
When can bankruptcy petitions be filed?
Barrister Shah Mohammad Ahsanur Rahman, a bank company act expert, told The Business Standard when a defaulter fails to repay loans and the amount of loans exceeds the value of his assets, including mortgaged property, he can file a bankruptcy petition.
According to Section 10 of the bankruptcy act, a defaulter can file a petition for declaring himself bankrupt while a bank can also file a case for declaring him bankrupt.
After the case is filed, the court hears the statements of both parties and appoints a receiver to prepare a report on all the movable and immovable assets of the defaulter. After receiving the report, the court rules in favour of the bank and orders the seizure of the defaulter's property.
In addition, the borrower has to repay the loans within 90 days after the verdict is given by the Artha Rin Adalat. If a borrower does not comply, the verdict will be sent to the bankruptcy court.
When banks file bankruptcy cases
Of the 179 cases under trial in bankruptcy courts across the country, 111 were filed by banks and non-bank financial institutions. Sixty-one of the 111, were stayed by the High Court.
Company act expert Barrister Tanjib-ul Alam said problems arise when a bank files a lawsuit to declare a defaulter bankrupt.
"The defaulter raises various excuses and files a writ petition with the High Court and gets the case against him stayed."
Mabiya Ship Breaking in Chattogram defaulted on a Tk77 crore loan taken out from Dhaka Bank. The amount was higher than double the company's total assets and mortgaged property. In 2015, the bank filed a case with a Chattogram court for declaring the company bankrupt.
After the case was filed, the company's Managing Director Jahangir Alam filed a writ petition with the High Court that year seeking a stay order on the case. The court first stayed the case for six months. The stay order was later extended several times and the hearing has not started yet.
When individuals file bankruptcy suits
In 1989, a businessman named Sekandar Ali of Kesharipur village in Bogura's Bariahat borrowed Tk5 lakh from the Bariahat branch of Rajshahi Krishi Unnayan Bank. In 2000, the amount of the loan increased to Tk10 lakh.
He filed a petition with a Bogura court for declaring himself bankrupt as the amount of default loan exceeded the value of the mortgaged property and his other movable and immovable assets.
Ashraful Islam, the current manager of Bariahat branch, said Sekandar's petition was granted and he was declared bankrupt. "After that, the court ruled in favour of the bank and ordered the bank authorities to seize all his assets."
"But the bank found that he had nothing but a dilapidated house and six decimals of land. He had actually taken out the loan by making fake mortgage papers."
The bank lost and the defaulter gained, he added.
Bankruptcy cases fell over the years
Barrister Khan Mohammad Shamim Aziz, a lawyer for the Bangladesh Bank, said there was a time when a large number of cases would be filed with bankruptcy courts.
He said banks always lose in bankruptcy suits in the sense that they cannot recover default loans.
"Also, the bankruptcy process was helping defaulters more. There are instances of dishonest bank officials' involvement in the act."
He said since the early 2000s, banks have been receiving property mortgages as well as security cheques from borrowers.
"When borrowers fail to repay loans, banks file cases with Artha Rin Adalat and also under the Negotiable Instruments Act to recover default loans."
The lawyer further said if a defaulter files a petition to declare himself bankrupt while a case against him is going on in Artha Rin Adalat, the Artha Rin Adalat suit automatically becomes invalid.
"Many defaulters would take advantage of this," he said.
Law Minister Anisul Huq told The Business Standard bankruptcy cases are delayed due to some problems in the bankruptcy act.
He said steps would be taken to accelerate case proceedings.
Bankruptcy law awaits reform for almost four years
A draft was prepared after initiatives were taken to amend the bankruptcy law three and a half years ago. But the reform has not taken place yet.
The draft made by the Bangladesh Bank states that if a person becomes bankrupt after borrowing from a bank or a non-bank financial institution, he will not be able to enjoy government facilities. He will not be able to contest any election and will not be allowed to vote either.
Moreover, he will not be allowed to take out fresh loans from a bank or a non-bank financial institution. He will be barred from leaving the country. He will not be invited to state functions.
However, he will be able to enjoy these benefits again with court permission upon discharge from bankruptcy.
In addition to declaring an individual or a company bankrupt, there is also a provision in the law for declaring a corporate organisation bankrupt.
The 1997 law did not have these provisions.
Former governor of the Bangladesh Bank Dr Salehuddin Ahmed said it is important to amend the bankruptcy law.
He said the provisions mentioned in the proposed amendment are modern and many countries around the world have such terms.
Serajul Islam, executive director and spokesperson for the Bangladesh Bank, said the draft law is now at the finance ministry.
He said it is possible to make the law up-to-date by completing some processes if officials concerned take initiatives.
Md Shukur Ali, joint secretary of the Financial Institutions Division, said the draft proposal is under review.
"Once the review is done, the next steps will be taken," he added.