Finance Company Act 2023: Could clearer wording prevent confusion?

In Bangladesh, aside from scheduled banks, financing businesses can be conducted upon obtaining a licence from the Bangladesh Bank. According to Section 2(1) of the recently enacted Financial Company Act, 2023, "financing business" encompasses receiving term deposits, providing loans, investing, and engaging in leasing activities, including those outlined in Section 21 of the Act. 

Section 2(7) of the Act defines a loan separately as an advance, borrowing, lease, purchased bill, invested money by the finance company operated as per Islami Shariah, or other financial services. 

As per Section 2(23), "person" under the Act refers to natural persons, companies, institutions, partnership businesses, and entities such as "shangha," "sangstha," and "samiti."

Operating a financing business without a licence has been criminalised under Section 58 of this Act and declared a punishable offence. Chapter 7 of the Act contains several sections detailing the consequences of operating an unlicensed financing business. 

Section 42 of this chapter stipulates that if the Bangladesh Bank considers that any person is operating or has operated such a business without a licence, it can investigate the matter. Sections 43 to 47 outline the powers that the Bangladesh Bank can exercise regarding such unlicensed financing businesses, how it would take control of the assets of those involved, and how such businesses operated by entities other than natural persons could be terminated.

Chapter 10 of this Act provides provisions on fines, offences, trials, and punishments, enhancing the punishment for operating an unlicensed financing business to not more than seven years imprisonment or a fine of up to Tk1 crore, or both. 

Under the repealed Act, i.e., the Arthik Protisthan Ain, 1993, for the same offence (section 30), a person could be punished with a fine of not more than Tk5 lakh or imprisonment for a term of not more than two years, or both.

The title and preamble of an act mainly indicate its subject matter, objectives, and scope. The preamble of the Finance Company Act 2023 states that this law has been promulgated to ensure transparency and accountability in the operation of financing businesses by financing companies, to provide licences, management, and rules-based administration, to strengthen the financial structure, and to satisfy the demands of the time. 

The short title provided in Section 1(1) states how this Act would be addressed, and Section 1(2) states that the Act would immediately come into force. 

But on the surface, it is difficult to understand whether this Act covers issues that do not involve a finance company registered under the Companies Act 1994. Considering the ground reality of financing business operations in our country, this title of the Act is highly problematic. 

This Act, under sections 4, 42, 43, 44, 45, 46, 47, 48, and 58(1), directly deals with the matter of operating an "unlicensed financing business." The definition of financing business under Section 2(1) clearly indicates that this Act is not limited to financing businesses operated through duly registered companies. 

Rather, it has been kept broad by focusing on the nature of activities, i.e., financing business, delinking it from the characteristics of the entity conducting those activities. 

Furthermore, Section 2(23) defines a person first by including natural persons, followed by legal persons of various types. Analogous readings of these two sections with other sections of the Act, including the penal section 58(1), indicate that this Act truly covers unlicensed financing businesses operated by natural persons. 

This camouflaging character could be avoided by cautiously titling the Act. For example, it could have been titled "Financing Business Regulation Act" or "Financing Business Operation, Administration, and Regulation Act," which would have been more inclusive in nature and would not raise ambiguity. 

The current title of the Act may tend to misconstrue its purpose and use by the authorities assigned. It may also restrict the public, in general, from approaching the assigned authority, i.e., the Bangladesh Bank, under this Act when they come into contact with or face trouble with the operation of unlicensed financing businesses. 

Moreover, persons involved in unlicensed financing businesses can claim that this Act's application is limited to companies that undertake such financing business and is inapplicable to individuals. Hence, they may discover an escape route from the accountability regime that this special law intends to establish and strengthen. 

Therefore, such ambiguity in the Act's text enhances the risk of being misconceived and misinterpreted. Moreover, it also provides an opportunity for the assigned authority to avoid responsibility by framing excuses based on ambiguity.

The newly enacted Finance Company Act 2023 is stringent in terms of punishment for unlicensed financing business operators. However, this stringent law may not yield the expected outcome due to ambiguities in the text. Unlicensed financing businesses, on the other hand, could take advantage of this Act. 

At present, people involved in such unlawful financing business activities are utilising the legal system to target borrowers by adopting different means. To deceive the nature of de facto financing business, they, in most cases, take borrowers' signatures on otherwise blank cheques as security. 

They often also take borrowers' signatures on blank stamp papers. These checks are later presented to banks with inflated amounts, and if returned for insufficient funds or for any other reason, persons operating such unlicensed financing businesses file cheque dishonour cases in subordinate courts against borrowers, seeking punishment for the offence of cheque dishonour under the Negotiable Instrument Act, 1881, and payment of the dishonoured amount by the accused. 

Subordinate courts mostly take cognisance of these cases, form charges, and conduct trials. Although this practice and approach have faced criticism from legal researchers and jurists, they unfortunately still persist and seem to require more time to change. 

With the ambiguities mentioned above, the newly enacted Finance Company Act of 2023 would fail to control unlicensed financing business activities if not clarified promptly.

Ashfaquzzaman Chowdhury is a Advocate at Supreme Court of Bangladesh

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.