‘Banks can’t Es­cape Scrutiny if Pub­lic In­ter­est’s Vi­o­lated’

DRAT says banks are an­swer­able if they en­ter into one-time set­tle­ment with de­fault­ers

The Economic Times - - Companies - Raghav.Ohri@ times­group.com

New Delhi: At a time when ‘gen­eros­ity’ of banks to­wards Vi­jay Mallya and other ‘de­fault­ers’ is un­der scan­ner, the Debt Re­cov­ery Ap­pel­late Tri­bunal (DRAT) on Mon­day ruled that banks are “not im­mune from scrutiny”, es­pe­cially if they act against pub­lic in­ter­est by of­fer­ing re­bates to a ‘de­faulter’ by en­ter­ing into a one-time set­tle­ment (OTS).

In a judge­ment which will have wide ram­i­fi­ca­tions, Jus­tice (retd) Ran­jit Singh, the chair­per­son of the Ap­pel­late body, has held that the prin­ci­ple of pub­lic ac­count­ing ap­plies to banks, too. The DRAT has ruled that if banks want an ap­proval of tri­bunals for the agree­ments they (banks) en­ter into with those fail­ing to pay back loans, they will have to sat­isfy the tri­bunals that such com­pro­mises are law­ful. The judge­ment was passed on Mon­day by Jus­tice Ran­jit Singh on an ap­peal filed by SBI against an or­der passed by a tri­bunal which had asked the CBI to in­ves­ti­gate a case in which SBI and Ori­en­tal Bank of Com­merce had of­fered a whop­ping re­bate of .₹ 40 crore to a Haryana-based en­tre­pre­neur.

A con­sor­tium of three banks — SBI, Ori­en­tal Bank of Com­merce and Pun­jab Na­tional Bank (PNB) — had of­fered a loan of .₹ 168 crore to a Haryana-based Vee­tee Fine Foods. Af­ter the com­pany failed to pay the loan, SBI and OBC of­fered a re­bate of .₹ 40 crore, ac­cept­ing an OTS of­fered by the com­pany.

Re­fus­ing to ac­cept the same, PNB chose to sell off prop­er­ties of Verma to re­cover the to­tal out­stand­ing amount. Cry­ing foul, the com­pany moved the DRAT de­mand­ing a stay on sale of the prop­er­ties. The same was re­jected by the tri­bunal.

Much to the sur­prise of the tri­bunal, PNB’s part­ners sup­ported the com­pany’s case and op­posed the sale of its prop­er­ties as de­sired by PNB. Rais­ing eye­brows over the stand taken by the two banks, the tri­bunal had asked CBI to probe the mat­ter and had passed stric­tures against of­fi­cials of the two banks. An ap­peal against the said or­der was filed by SBI be­fore the DRAT. Dur­ing the pen­dency of the ap­peal, PNB also ac­cepted an OTS with the com­pany. Since the chal­lenge to the tri­bunal’s or­der be­came in­fruc­tu­ous, the only con­tention left to be de­cided was whether the tri­bunals have the power to “in­ter­fere” in OTS or “com­pro­mise” made by banks.

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