Loan transactions: Will you hang the doctor if the patient dies? – The Financial Express

The Indian Banks’ Association (IBA) got its act together when it condemned the arrest of bankers.

The Indian Banks’ Association (IBA) got its act together when it condemned the arrest of bankers. Recent developments reflect an undue haste to trigger the criminal justice system. The golden string in the criminal justice system followed globally is that a hundred accused may be acquitted but an innocent person must not be convicted. A person who is arrested loses social status and reputation immediately. Arrest should not be the order of the day; it should be the last resort when there is no alternate left.

Bankers have been arrested recently, leading to uproar in the community. There is a paralysis in the banking system, and now with criminal actions being initiated and arrest of bankers becoming the order of the day, the situation has worsened. It is difficult to digest that, at any given time, all of them become corrupt, and with criminal intent defraud the system. There are several internal processes and controls initiated by several departments including credit, risk and compliance to regulate banking functions. Banking is a business of risk and risk mitigation.

The question is, who will first conclusively establish whether, in the event of an NPA, is it the case of genuine business losses; negligence on the part of bankers or other agencies; intentional fraud; or criminality where bankers or any other agencies have been part of the fraud in any manner?

We need to understand that losses made by business community are not fraudulent. There may have been actual business losses. Similarly, negligence on the part of any professional agency, including a banker, may not tantamount to a criminal act.

When agencies like the CBI or the Economic Offences Wing (EOW) get involved, they evaluate each and every case with criminal lens on their eyes. Most of the time, they are not trained bankers or lawyers or chartered accountants.

Let us take a simple case of a land due diligence report given by a lawyer. All of us, including the government, knows that land records are in poor shape. Even today, lawyers and search clerks are expected to carry out due diligence physically. Many a times, physical records are not available or are in bad shape. The searches for documents are carried out separately at various places such as the Land Revenue Department, Municipal Corporation, Sub Registrar of Assurances, Local Land Development Authorities and, in some cases, coastal and air authorities. There is no single-window system and no centrally-computerised system. The entire exercise is carried out manually. Any mistake may lead to wrong decision/report with no criminal intent at all. However, all such matters, if investigated by criminal agencies, will be construed as fraud where banker, value, lawyer, chartered accountant can be charge-sheeted.

There has to be a process. If investigating authorities are convinced there is a role played by a banker and/or any professional agency, there should be an independent forum comprising of a senior banker and two retired judges who can, prima facie, opine based on the report of investigating agencies whether criminality is established or not? Only where the independent agency finds that criminality is established, criminal investigations should be initiated. If, prima facie, the banker or any other professional has not played any role that may signal criminal intent/action, there is no point subjecting him/her to criminal investigations. Even existing bodies such as IBA for bankers, the Bar Council of India for lawyers, and the Institute of Chartered Accountants of India for chartered accountants could be such independent agencies.

Lawmakers and law-enforcers should know that India is a welfare state and draconian measures can be the exception, but not the rule and order of the day.

By- Rajesh Narain Gupta, Managing Partner, SNG & Partners

via Loan transactions: Will you hang the doctor if the patient dies? – The Financial Express

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