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.
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.
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.
This should have been written as " Mr Chaudhuri’s arrest, if unfair," makes it less presumptious.
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.
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.
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 !!
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 !!
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.
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 !!
You hit the nail .
Only white collar community suffers always !
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
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.
HAPPY NEW YEAR !
Who are we trying to fool ?