Ex-SBI Chairman’s Arrest: Should Lead to a Just and Equitable Recovery System
Is anybody safe from arrest anymore? No. This column is not about the arrest of Shah Rukh Khan’s son Aryan and the vulture media’s carnival around it. It is about the sense of outrage and anxiety triggered in the banking circles at the arrest of Pratip Chaudhuri, former chairman of the mighty State Bank of India (SBI). The issue applies equally to scores of students and activists who have been jailed and have lost their freedom only because their arrest was ratified by a court order.
This column will limit itself to banks and bankers, without holding a brief for anyone and with full awareness that public sector banks (PSBs) have not run up bad loans of Rs20 lakh crore without rampant corruption, behest lending and bending over backwards to please political masters. The shocking tales of callous bankers riding roughshod over small and medium enterprises and ruthlessly grabbing assets pledged by hapless entrepreneurs, at the first sign of trouble, are legion in India and also a part of this story. The very same banks that doggedly refuse to disclose the names of large corporate defaulters (read: https://www.moneylife.in/tags/bankloot.html) think nothing of humiliating smaller borrowers by publishing their photos in the media, even when businesses have failed for no fault of the entrepreneur. All these issues have come to a head in Mr Chaudhury’s arrest.
Consequently, while bankers accuse the media of irresponsible reporting, Mr Chaudhuri’s incorrect arrest has sadly generated very little public sympathy. WhatsApp groups of senior bankers, alarmed at the development, have shared details and are pushing for judicial restraint to avoid chaotic consequences if many more magistrates are in a hurry to jail retired heads of banks and corporate houses, on work-related civil matters.
This Issue
The Jaisalmer police arrested Mr Chaudhuri on 1st November and the chief judicial magistrate (CJM) rejected his bail application and remanded him to 15 days of judicial custody. The matter pertains to 2013 and the charge is that SBI seized two hotels belonging to a company, declared them non-performing assets (NPAs) and sold them to an asset reconstruction company (ARC). Mr Chaudhuri, then the SBI chairman, retired soon after and, in October 2014, joined the board of the same ARC that bought the property. The allegation is that the company’s assets (one running hotel and another under construction, which defaulted on loan repayment) were worth Rs160 crore but were allegedly undervalued and sold to the ARC (read details here: SBI's Ex-chairman Pratip Chaudhuri Held for Selling Hotel Property Cheaper by Declaring It NPA) and later went into the bankruptcy resolution process.
SBI has issued a press statement which said that all due processes were followed but the Bank had not even been asked for the details. The statement said that the court ‘does not appear’ to have been correctly briefed on the matter. It is this that is worrying and, unless rectified, will throw public sector banking into a greater mess than it is in now.
Let’s put things in perspective. Mr Chaudhuri retired as chairman of the 43rd largest bank in the world and the largest in India which accounts for a quarter of all loans and deposits in the country and assets of Rs50,33,914.35 crore and 24,000 branches. And he is arrested, eight years after retirement, on the charge of selling a bad loan asset (claimed to be worth Rs160 crore for a low Rs25 crore), following a legitimate and laid-down banking process.
Once the asset is transferred to the ARC, SBI has nothing to do with its eventual sale or valuation. There is nothing in the public domain to show that Mr Chaudhuri had any personal involvement in any of the decisions, including the alleged under-valuation, except that he joined the board of the ARC. Yet, his reputation has been ruined and he has spent a week in jail without giving him and SBI a chance to offer an explanation or give him proper representation.
According to bankers, SBI had followed the DRT/SARFAESI (debt resolution tribunal/Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act route in this case and assigning the project to the ARC ensured that SBI recovered its entire principal of Rs24 crore and more (while the total dues, including interest, were Rs34 crore in 2012 and nearly Rs40 crore in 2014, when the debt recovery suit was filed). Things came to a head when the ARC invoked the bankruptcy law in 2017 to sell the asset and the entrepreneur used the opportunity to file a criminal complaint against the resolution professional (RP) appointed in the case. He too has had to seek legal protection from arrest. 
According to banking circles, the promoter in this case is powerful and has constantly delayed recovery action. The arrest of the former SBI chief has certainly focused national attention on the case and, as it unfolds, we will know whether this is a hapless entrepreneur deprived of a valuable asset or a borrower who knows how to game the system. 
On the flip side, a dispassionate study of DRT cases would reveal that borrowers of this size are routinely steam-rolled by a draconian and one-sided DRT law which was engineered by the same banking industry and politicians who work overtime to protect large defaulters. 
Bankers are disturbed at the arrest of Mr Chaudhuri and are rallying around in support. Former SBI chairman, Rajnish Kumar has called the arrest a ‘case of high-handedness’, while another banker, Sunil Srivastava, accuses the ‘defaulter’ of gaming the system. In a tweet, he calls for and “overhaul of judicial processes to improve transparency and introduce accountability.”
The last bit is crucial and, hopefully, this case will draw attention to it. “Many assets are sold to ARCs for 15% of the outstanding value with a promise to pay more if recovered.” But this does not happen; instead, the borrower is cheated. “So what is urgently needed is to probe all ARC settlements, at least after 2014 during which period the sales speeded up,” writes DT Franco (Arrest Of Former SBI Chairman Pratip Chaudhari Opens Pandora’s Box), former general secretary All India Bank Officers Confederation (AIBOC). Dr Rajendra Ganatra, former head of an ARC, points out that at 15% of outstanding value, this project would be correctly valued at Rs160 crore in 2014 and would now be worth Rs200 crore.
If true, this only raises many more uncomfortable questions about our debt recovery and bankruptcy process. Consider this. Under the draconian new bankruptcy law, we have a committee of bankers allowing several large projects, which are 10 to 100 times this one, to be sold at a 95% to 99% haircut (read: Stop the Loot via Bankruptcy Code: Better Solutions Are Possible).
As recently as in May 2021, IDBI Bank, which has been repeatedly bailed out using taxpayers’ money, had accepted a one-time settlement (OTS) of under Rs500 crore from the notorious C Sivasankaran, against over Rs5,000 crore owed by him. They were stopped by the National Company Law Tribunal (NCLT) from giving him a 90% write-off and the matter is now in appeal.
If C Sivasankaran (of Siva Computers and Aircel), who is under investigation by the CBI and has highly controversial dealings with Infrastructure Leasing and Financial Services (IL&FS), the Tata group and others, is allowed such a generous deal, can one really blame an entrepreneur if his Rs160 crore asset is sold off at 15% for a Rs40 crore gross outstanding?
Clearly, the system stinks. Bankers ensured that draconian laws like the DRT and the SARFAESI Act are effectively used against small entrepreneurs while big defaulters go scot-free. Corruption is rife throughout the lending process and also in bankruptcy. A country cannot do well if a cabal of accountants, bankers and asset reconstruction experts exploit a slow, broken and expensive judicial system. Hopefully, Mr Chaudhuri’s arrest, however unfair, will focus attention on the need to change, so that bankers are not wrongfully arrested, but genuine entrepreneurs, who are the backbone of any nation, are also not cheated. At the same time, bankers who are colluding with businessmen to give loans on inflated project costs without enforceable collateral, must also be held accountable for looting taxpayers’ money on such a gigantic scale.
2 months ago
Most of the forums and tribunals are industry of central goverment where president and members are appointed after retirement from judiciary/Union Public Service Commission.

I am sharing true facts of 2 cases handled by me at top consumer court known as NCDRC.

CC/370/2013 in NCDRC

If you google, would get recently RBI imposed Rs 10 crore penalty on HDFC Bank for selling GPS system with vehicle loan during 2014-2019.
But The same regulatory RBI didn't take any action when insurance policies named Home Safe Plus-Secure Mind Policy of Icici Lombard were sold with loan by Icici Bank Ltd.....(is it not showing goverment interest with Icici Bank but against HDFC Bank.

On the other hand, in CC/370/2013 in NCDRC, Icici Bank and Icici Lombard Ltd got:
i. Clean chit for selling insurance policy with loan (the same insurance policy was already declared
as wrong insurance policy to sell with loan in April 2010)
ii. Clean chit for criminal offence.
iii. Clean chit for committing PERJURY (false submission)
iv. Clean chit for selling Home Insurance for non-existing under construction flat.
v. Clean chit for making assignment compulsory in favour of ‘HOME LOAN’.
vi. Clean chit for making thousands of people homeless for bank fault,can imagine since 2010 till2021

The health policy which was sold was already declared as wrong policy by Mumbai Ombudsman in April 2010 even then same insurance policy was sold to customers and NCDRC has given clean chit not only for unfair trade practice but also for criminal offence.....one can better get NCDRC is consumer court or and industry run by Ministry and its obliged appointed president and members of NCDRC.
In CC/1446/2016 in NCDRC (Real estate matter)

Judge V K Jain ordered against Bata India to submit all records of all stores after getting Rs 3 was charged from customer.

But the same Judge V K Jain when admitted case of delay possession against DLF Home (CC/35/2015) then no order was passed against DLF to submit records of all buyers of same project to pass on compensation to all (1445 flats in project,hardly 400-500 approached time to time for compensation) in such way DLF has been protected to compensate around 1000 buyers. Judiciary for all and not functioning only for cabable and knowledgeable persons.

Moreover compensation was given @6% ........indirectly inspiring , not to borrow money from banks on higher interest rate get money from public, use the money somewhere else and return money to customers with 9% refund or 6% as delay compensation.

Most of the scams, unfair trade practice are promoted by system not by individuals.

2 months ago
As expected, the Rajasthan High Court stayed trial court arrest order and released Pratip Chaudhury, ex-Chairman SBI on bail. It transpires that there were two FIRs lodged by the debtor company. One was closed by the police considering it as a’Civil’ matter in 2015 and another FIR of similar similar allegations which was quashed by Supreme Court in 2017. After a span of 5 years, the debtor company filed a protest petition which was duly taken in to consideration by a local court. The honourable High Court has now stayed the February 2020 order and all consequential orders passed by CJM Jaislmer.
The Indian Judicial system has in-built self-correcting mechanism. As such, this was to be expected. However, the role of Rajasthan Police in the entire matter is suspect. They should have brought to the notice of CJM, Jaisalmer that an FIR of similar nature has already been quashed by honourable Supreme Court in 2017. The local courts also reveal very sad lack of legal expertise and literacy relating to financial and banking matters. Eventually higher courts have to step in and correct the position. It is expected that eventually the arrest order passed without any application of mind will be quashed by the higher court.
2 months ago
" Mr Chaudhuri’s arrest, however unfair" - it is surprising that you decided he is innocent.

This should have been written as " Mr Chaudhuri’s arrest, if unfair," makes it less presumptious.
Replied to SuperSinge comment 2 months ago
That is your opinion. In my opinion, a bank chairman simply cannot be arrested for doing something in the line of his work -- without following due process and CLEAR evidence of personal corruption. And this is based on watching plenty of examples of excesses and miscarriage of justice by investigation agencies and vested interests in the past 35 years. This is a democracy and every citizen has the right to expect certain safeguards promised by the constitution. But you are entitled to your opinion. Wish they were based on facts and caveats clearly mentioned in my article.
Sunil Sivanand
Replied to sucheta comment 2 months ago
Obviously, there appears to be a conflict of interest as soon as Mr Chaudhuri took up the board position. So, his arrest (fair or not), would not have happened if this was not he case. Normally, well-connected and powerful people have a way of slipping out or evading answering tough questions, when done in the comfort of their homes. Good or bad, it should be a lesson for those who are considering post-retirement jobs, to stay out of being in a position of being a suspect! None of these people need such jobs, for their livelihood and often forget how they could get entangled in such issues.
Replied to sucheta comment 2 months ago
I request readers to read this and think about it-- when well-known people are jailed it makes news and ensures they get bailed. If it happens to ordinary, unknown people, they often languish in jail for years without bail: https://indianexpress.com/article/opinion/columns/aryan-khan-bail-stan-swamy-case-7613797/
2 months ago
Mr. Dhir the real Alchemist has probably gone beyond reach. He is the mastermind with track record of PSU Banks ARC dealings. Being a head of PSU Bank (Which goofs on appraisals) Mr. Chaudhary failed to appraise Dhir and fell into trap. Anyway system will come to his rescue eventually.
Replied to Nahom comment 2 months ago
Greed overpowers ethics & principles. Reputation & honesty is like Chinaware , Costly - Rich & Rare , if broken can be mended but Crack is always there ! Why did Sr fell in traps of crook Jr (Dh..I..r) ?
Replied to Ezeelok comment 2 months ago
He will be rescued by best Lawyers from the Camel's pit in Jaisalmer Thar Desert. As they say in US " A good Lawyer knows Law but the best Lawyer knows the Judge".
3 months ago
This isn’t the lone issue which led to arrest of the former Chairman. There are hundreds of similar issues where Bank’s have auctioned the properties under mortgage for miniscule values burdening the National economy. Surely the issue needs a detailed investigation.
Replied to vijfab comment 3 months ago
That's true.
In early to mid 2018 CMD & few Directors of MAHARASHTRA Bank Pune were arrested and put behind the bar for several weeks .
They had taken bribes and sanctioned loans to Crook Kulkarnis , DSKDL.
Entire Kulkatni Family is languishing in Yerwada Jail for the past 45 Months as they have cheated Thousands of Investors in connivance with Top Bank officials.
Angelo. Extross supporting SBI Ex-CMD should know the real face of Corrupt Bank Officials.
3 months ago
If the assets were worth 160 cr, nothing stopped the borrower from selling it himself and paying off the 25 crore loan. Borrowers don't take such action to sell their assets to pay the loan only when they know the asset value is worth less than the loan value.
3 months ago
To me the biggest mystery is "How can a lower court issue an arrest warrant over-riding the
SC?" Are our courts fighting it out amongst themselves as to who is "Higher". On the other hand, if it is established that the SC is higher, how was action taken on a lower Court's arrest warrant? Who is in contempt of court - the lower court or the authorities who arrested the person on the warrant of a lower court? At this rate no citizen can be free from being arrested anytime of the day or night.
Replied to angelo.extross comment 3 months ago
Why you feel it's a mystery ?
In a highly corrupt system , nothing works on logic.
If You have money to pay to expensive lawyers having connections & access to judiciary , one can get anything done or undone. Cash walks BS talks. It's all money game eventually. Don't feign naiveness & ignorance of the rampant corruption at all levels of society.
You may have vested interest in the accused and if you still believe he is honest , let him prove to the court & he can come out gracefully.
All the Best !!
3 months ago
Easeelok seems to suggest : ( 1) All top functionaries of all PSU Banks are necessarily corrupt and they should all be arrested without following any due legal procedure and without any application of mind. (2) Mr. Chaudhary, although it seems that he had no role in sanction, conduct and assignment of this particular loan, his arrest is justified notwithstanding anything in contrary. (3) The ARC who have taken over the loan and is following the due legal process to recover the loan is guilty and it’s officials should be arrested and the debtor company who has dodged repayment for a period of more than a decade by resorting filing frivolous pleas in lower courts need not bother about repayment and continue their business as usual.
3 months ago
Really sad that a country of 139 cr cannot find people with integrity and commitment to root out corrupt practices. Nothing has happened since 2014 to weed out the corrupt despite a clear mandate from people .
Replied to vram2311 comment 3 months ago
It seems foolhardy to expect eradication of deep rooted corruption iin 6 years that has been created and nurtured for over 60 years. Country can progress 50 times more if corruption is reduced even by 50% !!
We can't discipline & control our own few kids in the family and inculcate high moral values yet expecting to reform 139 Cr is a tall order !!
Sunil Sivanand
Replied to vram2311 comment 3 months ago
Yes, there are 139 cr people involved...so, don't expect any miracles in the short term or during our lifetime. Also, political perspective can sometimes cloud a person's perspective. That we have not had any major corruption scandals at the GOI level, is a good sign that changes are happening. No doubt, those who oppose the NDA government, will not see this as being important!
Replied to Sunil Sivanand comment 3 months ago
Very true Sir.
Agreed , no major corruption in 6-7 years.
Country's coffers were emptied during 2004-2014 with huge corruption at all levels.
Wishing Modiji a long & healthy life to make India a world leader.
Replied to Ezeelok comment 3 months ago
Well said
Replied to Ezeelok comment 2 months ago
Scams can be manufactured by politicians in coordination with bureaucrats like Vinod Rai n with the help of pliant media. What happened to coal scam n 2G scams
Sunil Sivanand
3 months ago
Mr Chaudhuri may be innocent. These cases are often complicated and no reader of the news can establish the guilt or innocence of the accused. Mr Chaudhuri, however could have been prudent in choosing his post-retirment board positions. As an ex-SBI chairman, there would at least a 100 or more large and mid-sized companies, that could benefit from his expertise on the board. I know a ex-Dy MD of SBI that had taken a role as board member of a smaller (private) bank. He served in that role for several years post retirement.
Replied to Sunil Sivanand comment 3 months ago
Money not only changes hands , it changes people !!
And why not when there is lure & opportunity to make so much "Extra" money hidden & untaxable.
Corruption starts from the top and filters down to Chai Pani by Chaprasis.
Everyone makes money according to their position and ability !!
3 months ago
It is a fact that bankers are ruthless when it comes to dealing with small and medium enterprises and ruin the business and the families of the owners/promoters they do not even want to divulge the details of big defaulters leave alone taking any punitive action. Big industrialists are offered 90 to 95% haircut which has to be paid by the tax payers while they live a lavish life style and we have not heard a single case when any prominent industrialist was held personally accountable for the defaults of his business which was mostly caused by diversion of funds to acquire personal wealth. And also it is an undeniable fact that much of the NPAs are a result of the corruption in banks and while the staff accountability in banks was used to penalise lower and middle level staff hardly any senior banker has been held accountable for bad loans caused prima facie by questionable lending decisions. It is high time for IBA and senior bankers to introspect and set right the rot which has set in the banking system. Perhaps revealing the names of big defaulters would be the first big step.
Replied to raaajan03 comment 3 months ago
Very true.

You hit the nail .

Only white collar community suffers always !
3 months ago
It's the bureaucratic politician big business nexus operating safely under Dilli centric facilitators, that is the cause and effect here.
Many ex bankers have complied with political parties, including the lowest level functionaries, otherwise their personal life's are in jeopardy.
Why serve in public sector where you are controlled by power centres and dirty politician in an historical blundered system ,inherited from the British.
It's a sour point that India doesn't trust the common man and use him as scapegoats while the big fish in league with the politician bureaucratic governance, has the last laugh.
The worst of the lot are now hiding abroad and using a decrepit legal system to escape, after defrauding the common man's money
Replied to manoj99nn comment 3 months ago
All corruption is product of nexus of big 5.
Politicians-Bureauctacy-Judiciary-Investigation & Law Enforcement Agencies and Admin.
If you have deep pockets and ready to buy Big 5 you can always have home run even if you're caught red-handed violating everything at will.
Laws & delayed justice are meant only for poor who cannot afford even a village lawyer to fight for his rights even at Taluka level.
Truly pathetic & disappointing.
What can one honest Modiji do ?
Corruption & System Failure is deep rooted since many decades and unfortunately highly corrupt judiciary aids & abets dishonests/crooks if one has money.
No wonder one Atheist Russian said India is run by God.
Need many more Modijis to cleanse the highly corrupt system.
Replied to Ezeelok comment 2 months ago
What can one honest Modiji do? There is a lot one can do. Can sell all public assets built in the past several years to my friends!! We will propagate stories about corruption while we collect money from corporates thru Electoral Bonds. Ppl will never who contributed n who collected.
3 months ago
The comments made by Amootha and Ezeelok and others who are out of place and do not deal with the subject matter. SBI sold the loan in 2014, when Mr.Chaudhary had already retired. This was a case of assignment of loan, which doesn’t amount to sale of property but deals in transfer of recovery rights and security interests under the SARFAESI Act, 2002, passed by the Parliament of India and subjected to rigid examinations by the the Apex Judiciary. This was also challenged by the debtor company in the Delhi High Court but turned down by them. SBI had reportedly assigned the loan for the principal amount of Rs. 25 crore and accumulated interested was sacrificed. However the debtor company’s liability towards the assignee ARC company remains unimpacted. In any case, the ARC cannot recover any amount that is in excess of what is legally due. Thereafter, SBI has no role in the matter. The legal dispute is with the concerned ARC and not with SBI. Mr. Chaudhary joined the ARC on year after retirement with written permission of RBI, as per laid down procedure. Later the case was admitted by NCLT,, Delhi under IBC. If the debtor company had some grievances, the redressal authorities are placed with higher judicial platforms, including the Supreme Court and not with lower courts. Thus the fundamental issue is that how can the lower judiciary issue arrest warrants when the proceedings were already quashed by the Supreme Court in 2017. Can the lower courts revive the proceedings without any authority and in direct violation of the SC order? Can the lower courts meddle and interfere in the functioning of NCLT, which are established in accordance with IBC Code, approved by the Parliament of India?
Replied to pramodpatil1950 comment 3 months ago
Obviously vested interests have to defend corrupts as no high ranking banker/official with decision making authority will not take advantage of his/her position !!
Who are we trying to fool ?
Replied to Ezeelok comment 3 months ago
These are generalised comments and do not address issues in the specific case. The presumption that all top officials of PSU Banks are corrupt is bad in law. Should we arrest them all without following the due legal process and without any application of mind?
3 months ago
Majority of decision making high ranking Bank officials /Bureaucrats are Corrupt. It's high time system is cleaned up and lost NPAs are recovered at any/all cost.
3 months ago
I agree. The system is corrupt at all levels . No one seems to look at the accumulated wealth of senior bankers not necessarily through fair means . It is deep routed . It is out of context , but will be shocking to know that there is no review of the valuation of collaterals offered . Whatever value at which it was offered at the time lending continues in the books , it seems . When the valuation itself is not proper , how banks can say due process was followed . It sounds vague . Instead the process followed by the bank should be discussed . And all the officials accountable should be brought to book if there is any breach .
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