How to escape loan defaulters list

In 2014, Dragon Sweater and Spinning Limited borrowed around Tk80 crore from City Bank. It ultimately defaulted on repaying the loan.

The loan balance stood at Tk112 crore in 2016 and the company was subsequently included in the list of the central bank's Credit Information Bureau (CIB) as a loan defaulter.

In January 2019, the company filed a declaration suit with the lower court, seeking a ban on its inclusion in the CIB list, but the court dismissed it. Two months later, it filed a civil appeal with the High Court against the lower court order.

The High Court granted the appeal and stayed that order for six months. The company's name was then removed from the CIB list and Dragon Sweater and Spinning got an opportunity to reschedule its loan.

The High Court stay order has since been extended several times.

City Bank and Dragon Sweater lawyers said an appeal for staying the High Court order as well was still awaiting a hearing.

This has become a new strategy that defaulters use to prevent themselves from getting included in the CIB list, said an official at the Bangladesh Bank.

Defaulters used to file writ petitions with the High Court so that their names are not included in the CIB list. But now, they are using the new tactic because the opportunity to file such writ petitions with the High Court was closed by the Appellate Division.

As part of this new strategy, defaulters first file a declaration suit with the lower court, seeking a ban on their inclusion in the CIB list. When that is dismissed, they appeal to the High Court against the lower court's verdict.

In most cases, the High Court temporarily stays the lower court order. The validity of the stay order then continues to be extended.

At the end of 2018, an Appellate Division bench headed by Chief Justice Syed Mahmud Hossain disposed of the appeal of the National Bank Limited vs MR Trading Company case and ruled that defaulters would not be allowed to file writ petitions against their getting included in the CIB list.

The ruling said such suspension of the inclusion in the CIB list conflicted with the constitution and the Bank Company Act.

MR Trading had defaulted on a loan amounting to around Tk200 crore. The High Court banned MR Trading's inclusion in the CIB list, but the Appellate Division rejected the ruling.

National Bank's lawyer Abdul Baset Majumder, who is the former president of the Supreme Court Bar Association, told The Business Standard that MR Trading had repaid the loan following the Appellate Division order and got the opportunity to reschedule its loan.

Appeal statistics

Loan defaulters have so far filed some 2,000 appeals with the High Court  – from January 2019 to October this year – against lower court rulings . In these appeals, except for 139, the defaulters received stay orders from the High Court and their inclusion in the CIB list was suspended.

These appeals involve default loans amounting to about Tk30,000 crore taken from state-owned as well as private banks. Although about 500 appeals have so far been filed with the Appellate Division against the High Court orders by various banks, their hearings have not been held yet.

Md Serajul Islam, executive director and spokesperson for the Bangladesh Bank, told The Business Standard that not a lot of writ petitions seeking a ban on the inclusion in the CIB list were being filed with the High Court these days.

Barrister Tanjib-ul Alam, a lawyer for the central bank, said, "Earlier, defaulters would file writs and the verdicts would go in their favour. Now they are coming to the High Court, using the loopholes in the law. There should be specific guidelines from the Supreme Court regarding such cases."

Rulings drag on for years

After declaration suits filed with the lower court are dismissed, defaulters first appeal to the High Court and get a stay order for three to six months. This order is later extended multiple times.

Officials concerned said in court defaulters in most cases raise the excuse of their businesses not going well.

Noted lawyer Dr Shahdeen Malik said the High Court can give an order in favour of defaulters on a specific ground. "But it has been seen that High Court stay orders are extended year after year by appointing influential lawyers."

Dr Shahdeen said, "It is often seen that lawyers of the banks in question or the Bangladesh Bank are absent in court hearings. The court then holds a one-sided hearing and gives an order. Thus, the court order usually goes in favour of defaulters."

Former Chief Justice ABM Khairul Haque said the High Court needs to be careful about bank cases and should think a little before giving an order in favour of defaulters.

The Bangladesh Law Commission chairman also said, "It was observed that as the High Court and the Appellate Division had not heard such writs year after year, defaulters kept extending the stay orders in their favour for long. Therefore, special initiatives need to be taken for speedy disposal of such appeals or writs."

Former law minister barrister Shafique Ahmed urged the authorities concerned to form a special bench of the High Court to expedite the disposal of such appeals or writs.

He said any citizen could file a declaration suit but the court has the jurisdiction to give an order on that.

"I do not know about any case where the lower court gave an order or ruling in favour of defaulters. That is why defaulters are going to the High Court," he added.

"However, we need to be more careful about the orders given by the High Court on cases related to defaulted loans. Defaulters are not repaying bank loans year after year because of such court orders, and this is harming the country's economy," Shafique said.

Special bench not formed yet

Former finance minister AMA Muhith wrote to the law minister three times, requesting him to form a separate bench to expedite the disposal of writ petitions and appeals filed by defaulters with the High Court. But there has been no result yet.

Law Minister Anisul Huq said his ministry had discussed the matter with the chief justice, but no such special bench had been formed yet.

He assured that immediate actions would be taken in this regard after discussing the matter with the chief justice again.

Finance Minister Mustafa Kamal said there would be discussions with the law minister and the chief justice on the pending cases related to default loans for their speedy disposal.

Dr Mohammed Farashuddin, former governor of the Bangladesh Bank, said, "Due to lawsuits, default loan recovery has somewhat stopped. Those who used to repay their loans regularly in the past are now being influenced by the tactics used by defaulters."

He called on the finance ministry, the Bangladesh Bank and the law ministry to take strong collective initiatives for the disposal of default loan cases, writs and appeals filed with the High Court.

Attorney General AM Amin Uddin said his office would take initiatives to dispose of the writs filed by defaulters before the Appellate Division had ruled in November 2018 that no such writ could be filed.

"This is because no new order or law can have a retrospective effect on any old process. However, as per the directives of the Appellate Division, no more writs can be filed."

He said his office would take steps soon to expedite the disposal of the old petitions.

"Several state-owned banks have already discussed the matter with me. We have prepared a list of various appeals, revisions, and old writs. The Supreme Court is now on winter vacation. Once the vacation is over, steps will be taken to find ways to dispose of the old writs fast in consultation with the chief justice," said Amin.

The government's chief litigation officer also said his office would take stern actions against loan defaulters so that they cannot take advantage of various legal loopholes in the High Court.