Amendments to legislations have been a custom of the Parliament from the very beginning. After the end of British rule in the subcontinent, many countries including Bangladesh amended the old laws from time to time as per their need.
The Bank Company Act 1991 is one of the Acts which had a lot of criticism and many suggested amending it. Nevertheless, only recently some effective changes have been seen in the proposed amendment to the Bank Company Act.
The recently proposed amendments to the Bank Companies Act 1991 have been intended to take severe actions against wilful defaulters. On account of these new amendments, the wilful defaulters will encounter some restrictions as to travelling abroad, purchasing of shares, exercising his or her directorship, all kinds of expected advantages. This article outlines a commentary on the proposed changes of the Bank Company Act 1991 and its possible impacts.
In the proposed amendments, one of the most important changes is the inclusion of the term "Wilful Defaulter Borrower". Previously, it was very difficult to hold the wilful defaulter borrower liable only because there was no direct provision for them. If the new amendment comes into force, it would be easier to take action against them.
Furthermore, to maintain an international standard of practice and principle, some changes are made in regards to the definitions of Loan, Money Laundering, Fiduciary Duties, Financial Offences and Terrorist Financing.
A new provision concerning the explanation of date of acquisition i.e. possession and mutation have been suggested to be added as it is acknowledged that the inclusion of mutation as the date of acquisition is a prerequisite for the entitlement to sell the property.
According to the new amendment, if any person from the senior management or two-tier lower officer is found guilty of misappropriation of money or corruption, he will be disallowed to participate in any activity, directly or indirectly, in the bank's management and administration. He will also be disqualified to be appointed in any other bank. Such provisions seem too harsh and the accused must be given his right to a fair trial.
For development in the banking sector, good governance and sustainability are the prerequisites. Thus, under section 14A of the proposed amendment of the Act, some strict prohibitions have been imposed.
The proposed Section 14B of Bank Company Act 1991, requires the approval of the Bangladesh Bank to qualify a person/company/institution to be a substantial shareholder.
The amendment consists of two conditions. Firstly, no bank company can be a substantial shareholder of another bank. Secondly, if any legal entity is a substantial shareholder of a bank; then, such cannot be a substantial shareholder of another bank.
Upon following these conditions, the associated risks of bank loan can be far more be reduced by controlling the participation of banks in the Stock Exchange for any share investment. Besides, this provision is expected to maintain good governance and stability in the financial sector and protect the interest of small investors.
In the previous Act, approval of Bangladesh Bank was needed for appointment, posting, dismissal or removal of Directors, MD and CEO. The proposed amendment also includes prior approval for re-appointment/re-posting of Directors, MD, CEO and also lower officers up to two tiers.
Previously, it was prohibited for a director of a bank company to hold the same post at another bank. To prevent control of a single industrial group now same rules are proposed to apply at the agents/representatives as well.
These rules are not applicabledo not apply for the state-owned bank officials. This shows inequality and inequitable treatment with private bank officials. Therefore, these can be revisited for the sake of uniformity and fairness.
Few other rules included in the new amendment also seem harsh. For example, when officers are disqualified over allegation of financial offences, they can not challenge the decision in the court. Under section 46 of the Bank Company Act, the Bangladesh Bank has the power to remove Chairman, Directors, Managing Director, Chief Executive Officer, or maximum two-tier lower level officers of any Bank Company for such allegations.
Though such provisions can prevent any harmful illegal activity and issuance of anonymous loan and uphold an international standard of rules, such arbitrary provisions directly contradict with the Right to Justice.
Some new provisions in regards to the execution of the Board of Directors of Bank Company have been proposed to be amended. Previously, only three independent directors were required in an institution. According to the new proposal, a minimum of eleven directors are obligatory; however, the proportion of the independent director must be at least one-fifth of the total directors.
Moreover, following the international practice and principle, the requirement of academic, professional and practical qualification of the directors is increased. Furthermore, according to the proposed amendments every Bank Company has to form "Nomination and Remuneration Committee" and "Ethics and Compliance Committee" to deal with the relevant matters.
New amendments in the Bank Company Act require personal guarantee and security before getting a grant of Loan or Advances. This provision applies to any close company or person associated with the director as well.
This provision is an effective mechanism to eliminate the influences over the bank; also, it renders proper discipline and governance in any ailing banking/financial sector. All directors and officers in charge will be held liable for breach of this provision. This law carries a penalty of a minimum of five lakh taka fine or three years imprisonment or both.
Additionally, in the amendment of the Bank Company Act, section 27AA demands greater accountability from the directors; also, ensures severe penalty if found guilty and requires identification and listing of wilful defaulter borrowers to promote excellent governance and administration in any bank company.
Under this section, the wilful defaulter will be facing denial to further loan facility and soon after taking into possession of their mortgaged property, it will be up for sale. Further restrictions include travelling abroad in business class, issuance of trade licenses, car and property registration, and registration under RJSC.
The defaulters will also be obstructed from attending any state functions and getting state recognitions. The restrictions outlined under this section will lead to strict consequences against the wilful defaulters and the directors.
There have been tremendous changes between Section 58 and Section 76 of Part V of the Bank Company Act 1991, which comprises some important provisions to prompt corrective action for the proper management of weak bank companies.
The provisions regarding the punishment/penalties in the proposed amendment have become stricter, for doing business without licence or after expiration of a licence, there would be fine of Tk5 lakh to Tk50 lakh and up to seven years of imprisonment might also be imposed.
Similarly, if someone provides misleading, false or fabricated document or information, the person might be imprisoned for three years and/or maximum of Tk5lakh of taka fine would be imposed.
Such strict penalties would help to maintain an international standard, nevertheless, it may raise the issues of breach of Human Rights, i.e. Right to Fair Trial, Right to Self-Defence, and Right to Self-Explanation. These rights must be ensured and allegations must be proved beyond a reasonable doubt.
Following the new amendments, after submitting the financial information to the Bangladesh Bank, now, the banks do not need to publish the same information to the newspapers; rather they are obliged to publish to the website only, where the information is visible.
This new provision is a very good initiative as it would reduce the expense of the banks; besides, everyone will be able to easily reach for the required information online at any time from anywhere.
The proposed amendments in the Bank Company Act have addressed most of the lacking of the previous Act upholding the international standard of practice and principle.
Nevertheless, few provisions in regards to penalty and disqualifications of the Directors, MD, CEO and other relevant officers should be revisited by the relevant law enactment authority since these directly contradict with the principles of human rights.
Overall, the new amendment of the Bank Company Act might successfully play a vital role in dealing with the major problems of Wilful Defaulter Borrowers, arbitrary control of a single industrial group or family and regain the loss of confidence of the general people in the banking sector caused because of the loopholes of the previous Bank Company Act 1991 and also will go a long way to ensure good governance and efficient management of the Bank Company of a country.
The author is a Barrister-at-Law and an Advocate of the Supreme Court of Bangladesh.