Beware of banks: They can hang you without trial!

It is sometimes said that greatest scholars make greatest blunders far beyond that could be thought of an illiterate man. So also is said that Lord Chief Justices and Lord Arch Bishops at times commit greater violation of natural justice than a common man.

The Securitisation Act spearheaded by eminent legal minds/economists — including Union Finance Minister P Chidambaram — and the interpretation of that enactment by eminent judges of the Supreme Court is possibly a classic example of the blunders or injustice the mightiest of the mighty and the brainiest of the brainy make.

If a law is made today, sanctioning execution of somebody accused of murder without trial, even the most illiterate would raise his eyebrows. The Securitisation Act — enacted by the Parliament in 2002 providing for dispossession and sale of a property, say a residential house given as security for a loan — is similar to execution of someone accused of murder without trial.

One would have, therefore, expected the Supreme Court to either set aside the said law as violative of natural justice, which is very much ingrained in the fundamental rights enshrined in our Constitution.

But, unbelievable it may appear though, the very question whether even a residential house which is said to be given as security for a loan from a bank could be sold in auctioned by ousting such pledger from his home without any kind of adjudication of the debt and whether it will not amount to violation of the principles of natural justice that nobody shall be condemned unheard was not even discussed.

Even the God heard Adam before He expelled him and Eve from the Eden Garden. An equally important principle of natural justice is that nobody shall be a judge of his own cause or nobody shall be a judge and prosecutor at once was also not discussed far from being adjudicated by the Supreme Court.

The Securitisation Act was enacted with only one focus i.e. for recovering about one lakh crore of rupees remaining outstanding as NPA (Non Performing Asset) in the accounts of the banks. The nationalised banks were the worst affected. Despite being a distinguished economist and lawyer, Mr Chidambaram, too, apparently completely lost sight of the real reasons why there was such a huge NPA.

The Supreme Court too saw no wrong in the government’s contention that such a huge amount of money has become NPAs/bad debts and the ordinary mechanism of recovery through civil court/DRT has failed and that there exists great justification and a compelling need for a drastic, if not, draconian law.

The Supreme Court, however, would not have realised that upholding such an enactment which buries the concept of natural justice — that no man shall be a judge of his own cause, that no one shall be a judge and prosecutor at once and that nobody shall be condemned unheard even without a discussion — would be an invitation to anarchy.

The court, it seems, had thought that providing for an opportunity to the borrower to represent to the bank itself against an unfair action by the bank invoking the Securitisation Act and casting an obligation on the bank to consider such representations objectively and to afford him/her a speaking order could offer enough protection against gross abuse of power at the hands of the bank.

Little did the SC realise that even an angel ought not to be made a judge of his own cause. In practice, the submission of objections to the bank has been proved to be a useless formality; worse than an appeal from Caesar to Caesar’s wife.

The judgments of the Supreme Court in Maradia vs Transcore case amounts to a virtual destruction of the finest of the principles of natural justice which have been recognised as essential component of fundamental rights by many a judgments of the Larger Constitutional Benches of the Supreme Court.

The banks realized that they could be a law unto themselves with impunity. One now even runs the risk of being dispossessed of his/her residential home and the same being sold in public auction though he or she has neither pledged his house to any bank nor he or she has taken any loan from any bank without any remedy. One would think it to be an imaginary situation.

True, it is not being happening everywhere and very commonly. But there are instances where one is dispossessed of his or her residential home even though he or she had not taken any loan or is a guarantor or a pledger; but merely because a bank thought such a residential house is a secured asset of it.

Instances as the one cited now may be very rare. One in a million. But with the judgment of the Supreme Court in Transcore case, such cases could only multiply.

The reason is simple; though the very thought is horrifying. The eminent Judges of the Supreme Court, in the said case, held that a notice by the bank under Section 13(2) of the Securitisation Act demanding payment, claiming one to be a secured debtor/pledger is as good as a decree against him. The court has also held that such a notice is a demand notice. It means a debt has been crystallised. And that the property shown in the notice as secured asset is the secured asset of the bank.

In other words, there is no need for any adjudication, whatsoever. The bank is the judge of its own cause. It is a prosecutor/complainant and a judge at once. It is even worst. There is no need for any adjudication at all. There is no need to hear the borrower.

There is no need to even decide who the defaulter is or work out what is the amount due from him. The law, as declared by the Supreme Court in Transcore case, is that a bank or a financial institution covered by the Securitisation Act is a law unto itself.

The bank will decide who is a debtor. What is the amount due? What is the security given – everything – even without a notice to or hearing the borrower/party affected. And he will be dispossessed of his property without any adjudication, not even by the bank – very often it could be even his residential house.

It is a tragedy that such an aghast legislation was passed without any discussion on the grave implications in spite of the fact that our Parliament has to its credit very many legal luminaries.

The Act, as is interpreted by the Supreme Court, cannot be allowed to remain in the statute book even for a moment. The SC itself could undo the damage done by overruling the judgments as per incuriam.

But it may take time. The Parliament, therefore, has to step in and the minimum that is required is to introduce a mechanism by which there is some kind of adjudication or quantification of the liability by someone who could act impartially and independently.

Such a mechanism could be summary and even the bank officers themselves could function as adjudicators but they should not be the same branch managers or officers who have handled the account. A better option could be to utilise the services of retired judicial officers or even lawyers while putting in place such a mechanism.

Without deviating from the focus of this article, I must say that the then prevailing prime lending rate of 20 per cent was the real culprit behind the NPAs.

The banks were accepting deposits offering 20 per cent interest. Except gambling or other illegal business, no other business could have generated enough income to be profitable even after paying interest @ 20% or more on the loan taken.

Further, a major chunk of such NPAs were attributable to Public Sector Undertakings, the holy cow. If today NPA has come down, it is not because of the draconian Securitisation Act as many assume, but because of the reduction in interest rates and a vibrant economy growing at 9 %( GDP).

(Nedumpara is an advocate with Bombay High Court. The opinion expressed here is his own.)