Proposed measures in new passport law
- Passports of loan defaulters to be seized or revoked
- Foreign travels to be restricted even if loan default is caused by business failures, losses
- Proposed amendments to Bank Company Act, Bankruptcy Act, and Finance Company Act also seek punishment for defaulters
- Bankers, lawyers, and economists say existing laws are enough to be hard on loan defaulters but those are not properly enforced
Loan defaulters, no matter wilful or circumstantial, will have their passports seized or revoked, according to a proposed new passport law seeking to prevent bad borrowers and money launderers from fleeing the country.
The new law drafted by the home ministry to replace the existing one came hot on the heels of the proposed amendments to three other laws – the Bank Company Act, the Bankruptcy Act, and the Finance Company Act – that also suggested introducing punitive measures against loan defaulters.
These proposed amendments moved by the finance ministry seek to restrict wilful defaulters from travelling abroad and bar them from getting their homes, land, and cars registered.
Wilful defaulters of non-bank financial institutions will also be declared ineligible for memberships of political and social organisations and invitations to state programmes, according to the draft amendments.
The proposed changes to the Bankruptcy Act will enable banks to take over the assets of a defaulter.
But the proposed changes to the Passport Act seems to be even tougher – it wants to restrict foreign travels of not just willful defaulters, but also the borrowers who fail to repay bank loans due to business failures and losses.
Bankers, lawyers, and economists, however, say something different with regard to the enforcement of the existing laws dealing with loan defaulters. The existing laws, in their views, have enough provisions to be hard on loan defaulters but those are not properly enforced.
Only making stringent legal provisions will be useless if enforcement remains weak as before, says noted economist Dr Ahsan H Mansur.
Without the government's political goodwill, there will be no benefits of these laws, he adds.
"Influential people are not considered defaulters. They can contest elections even after they default. They travel abroad with high-ranking government officials. No matter how many laws the government makes, without deciding to strictly deal with defaulters those will only exist on paper," says Ahsan H Mansur.
A provision in the proposed passport law says the government can restrict one's foreign travel if there is reasonable evidence that the person is involved in money laundering, defaulting on bank loans, human trafficking, dealing in illegal drugs and arms, and extremism.
Officials at the home ministry said the police headquarters had begun drafting the amended passport law in 2019. The draft was recently sent to the home ministry and will be finalised after receiving written opinions of the ministries concerned, including the Financial Institutions Division under the finance ministry.
The draft will be passed into a law after it is vetted by the law ministry and approved by the cabinet.
In addition, a new law to establish an asset management corporation to deal with defaulted loans has been drafted. The corporation will buy such loans from banks and recover those from clients under its own management.
But the Financial Institutions Division has yet to determine in two years whether this organisation will be a company or a corporation and finalise the law.
ADR to be amended
The Financial Institutions Division is also going to amend the Alternative Dispute Resolution (ADR) procedure under the existing Artha Rin Adalat Ain 2003 by formulating a rule.
Until December 2020, about 74,000 cases remained pending at the Artha Rin Adalat (money loan court) and the recovery of defaulted loans of around Tk1.25 lakh crore remained stuck. Defaulters received stay orders in about 22,000 cases by filing writ petitions with the High Court.
Former finance minister AMA Muhith took various initiatives during his tenure to introduce a retrospective effect system for speedy disposal of nearly one lakh cases pending in the High Court and the Artha Rin Adalat, and to form a separate bench of the High Court to deal with such cases but those were not implemented.
Barrister Tanjib-ul Alam, a company law expert, told The Business Standard that a large number of defaulted loan cases remain pending as they have been stayed by the High Court.
There are also crises of judges and courts which are delaying case disposals, he said.
The lawyer said there should be a separate Artha Rin Adalat in each district but the reality is different.
"There are only four separate courts in Dhaka. In other districts, the courts equivalent to those of joint district judges hold trials of these cases. As those courts are holding trials of loan default lawsuits along with trials of other cases, case disposals get delayed," he added.
When the Artha Rin Adalat Ain was passed in 2003, the amount of defaulted loans was Tk20,319 crore, which was 22.13% of the total loans disbursed at that time. In the first two years after the law took effect, defaulted loans began to fall. That year, the Bangladesh Bank introduced the facility of writing off defaulted loans that are in the bad loan category.
In 2005, the amount of defaulted loans stood at Tk17,511 crore, which was 13.55% of the total loans at that time. But defaulted loans also began to increase that year.
Despite allowing rescheduling and restructuring of defaulted loans under special considerations on several occasions, defaulted loans stood at Tk1,10,873 crore at the end of March 2019.
Due to special facilities given in the time of the Covid-19 pandemic, including rescheduling at 2% interest, defaulted loans came down to Tk88,734 crore in December last year.
ADR not applied to recover defaulted loans
Sections 22 to 25 of the Artha Rin Adalat Ain have provisions to apply ADR for quick disposal of cases related to defaulted loans but those have not been implemented.
Experts say implementing the provisions is not possible as there is no rule for applying the ADR. The Law Commission recommended formulating a rule in 2015 but that has not happened even after six years.
ABM Khairul Haque, chairman of the Law Commission and former chief justice, told The Business Standard that Section 22 of the Artha Rin Adalat Ain says it is mandatory to dispose of loan cases through the ADR.
"Sub-section 2 of that section says the court shall appoint two lawyers from both parties and a neutral intermediary for settling such disputes. Moreover, a lawyer or a retired judge or a retired officer of a bank or a financial institution shall be appointed as the intermediary," Justice Khairul said. But lawyers are against the ADR as they think introducing the procedure would lessen the number of cases and their earnings would decline.
"Moreover, judges do not have much training in ADR either. In 2015, the Law Commission said in its proposal to amend the Artha Rin Adalat Ain by making a provision for the judge himself to take initiatives to settle a dispute by applying the ADR and act as the intermediary if the defendant responds to the summons after a case is filed," said the commission chairman.
He also said such practices exist in many countries, including the UK, the US, and Singapore, and they are getting good results.
However, if any of the parties does not agree to have the dispute settled through the mediation of the judge, the judge can appoint a prominent person as the mediator, the Law Commission said in the draft amendment to the Artha Rin Adalat Ain.
Justice Khairul said having laws is not enough and the government should take steps to put pressure on stakeholders to enforce the laws.
"The bottom line is that the government should be in favour of implementing the ADR in the Artha Rin Adalat," he said.
Disputes involving any amount can be settled
Deputy Attorney General Imran Ahmed Bhuiyan, an expert in bank and company laws, told The Business Standard that as per Section 25 of the Artha Rin Adalat Ain cases of recovering defaulted loans of any amount can be disposed of by applying the ADR.
"But in reality, it is of no benefit. Instead, the case disposal time is getting longer and defaulters are taking advantage of that," he said.
He further said, "According to Section 22(5) of the act, 90 days are available for mediation. As per Section 22(6), the court shall compulsorily appoint a mediator. But according to Section 22(3), the court cannot set the mediator's remuneration. Why would a mediator work if he does not receive any monetary benefit?"
The deputy attorney general said these sections of the ADR are quite complex.
"The repealed Section 21 was much more effective. It said the court would try to settle a dispute in the presence of both parties through a settlement conference. In case of failing to do so, the case would be sent to another court for trial."
Imran thinks restoring Section 21 or incorporating it in a different way will bring good results.
No progress in implementing ADR guideline on loan recovery
In 2018, the Bangladesh International Arbitration Centre submitted a draft guideline to the Bangladesh Bank on speedy resolution of any loan dispute between banks and clients by applying the ADR in an out-of-court setting. But its implementation has seen no progress.
Md Serajul Islam, executive director of the Bangladesh Bank and its spokesperson, said the authorities concerned would work on the guideline.
"But there has been no progress yet as there are bigger issues that need to be dealt with now," he said.
After receiving the guideline, the central bank formed a committee led by the Bangladesh International Arbitration Centre's Chief Executive Officer Muhammad A Rumee Ali. A representative of the Bangladesh Bank is also on the committee.
Rumee said they had proposed applying the ADR to only settle disputes involving loans up to Tk25 crore.
"Defaulters have filed cases and writ petitions, and loan recovery thus remains pending. This problem can also be solved by applying the ADR. This will be easily possible if the Bangladesh Bank issues a circular, saying the existing default cases can be disposed of through the ADR," Rumee explained.
He added, "If the Bangladesh Bank formulates a guideline on applying the ADR in an out-of-court setting, that will bring many benefits to both banks and clients."