Epitomising mismanagement in public banks

Much has been written about the alleged banking scams in HallMark Group and also about the swindling of public money in BASIC Bank. These incidents appear to be outright scams and the magnitude of the money and people involved in them are very worrying and surely they entail outright squandering of public money. However, a relatively less reported phenomenon is the relaxed approach to recovery of loans at times bordering on an over-zealous approach to writing off loans due to public banks by powerful quarters. These though may not amount to crimes per se; are no less inimical to a sound management of public money. This brief essay would epitomise such a trend in the management of public banks as gleaned from a judgement of the High Court Division (HCD) where the Board of Directors of Sonali Bank were too eager to write off loans to those who seemingly had easy access to the leaders of the ruling party.

In Elite Lamps Ltd v Government of Bangladesh and Others (2012) 64 DLR (HCD) 62, the petitioner company obtained a loan from Sonali Bank Ltd. for the running of its business. It was alleged by the petitioner company that the bank did not provide it with the required working capital essential for smooth running of its business as a result of which it failed in its business. However, when the company failed to repay its loan, the bank filed a money loan suit for recovering the due amount under the contract.

On the other hand, a report submitted by a Sick Industries Rehabilitation Cell formed by the Government asked the bank for providing the company with adequate funds. Upon an initiative of the Prime Minister, a Parliamentary Sub-committee was set up to look into the issue. Subsequently, on the basis of recommendations by the Public Understanding Committee and then by the Standing Privilege Committee of the Parliament; the office of the Speaker issued instructions to Sonali Bank authorities and the Government for taking necessary steps. On the basis of these recommendations, the Board of Directors of the Bank passed a resolution deciding, inter alia, to write off the whole liability of the company under the loan and release properties mortgaged as security for the loan. The resolution of the Board of Directors was even communicated to the petitioner company.

The Bank had also sent a copy of the board's resolution to the Government and the latter directed the Bank to settle the dispute with the petitioner. At this stage, ignoring the opinion of the legal advisors of the Bank, Sonali Bank (the judgment does not specify at the instance of whom in the management but clearly someone who is subordinate to the Board of Directors as ultimately the Board is the apex internal body of the company) decided not to implement the resolution of the Board and proceeded with the money loan suit against the petitioner company. The petitioner contended that in view of the board's resolution, the suit for recovery of the loan was not maintainable. Rejecting the petitioner's contention, the HCD observed that the Board's resolution is not enforceable by the petitioner company on the following grounds:

Firstly, because the decision that was taken did not reach finality for want of approval of the Ministry of Finance. Secondly, Bangladesh Bank did not give its clearance in respect off of the entire loan specially the capital amount. Thirdly, the move on the part of the Bank was tainted with external pressure. Fourthly, it is against public policy in as much as by that way a group of people would have been blessed with unjust enrichment at the cost of public money. And finally, resolution of a bank, if any, does not bind the other respondents with any legal obligation to do a duty so that may be directed to do the act as prayed for. (Para 10)

Thus, the HCD observed that the very fact that despite the passing of the resolution, the bank continued with the suit which implied that the resolution fell short of a final decision. In any case, in the court's view, it was within the powers of Sonali Bank to take a decision and then to neglect it (para 12). The communication of the resolution did not give rise to any cause of action in favour of the petitioner company, the HCD found.

It is unimaginable that the board of directors of a private bank would have been as eager as the Board was in this case. The cantankerous position of someone within the bank ignoring the legal advisor's advice and resolution of the Board and vigilance of Bangladesh Bank authorities could make sure that the defaulters would not get their way. And despite such courage and vigilance, the disposal of the original money loan suit which was filed as early as in 1991 could be delayed by filing four writ petitions (including the one discussed here) and civil petitions to the Appellate Division of the Supreme Court until at least 16th October 2011 (the date of the delivery of judgement in this writ petition). It seems that the HCD has aptly remarked “[t]he scenario of this case provides a glaring example of abuse of the process of Court by an influential person in order to avoid huge liability he admittedly owes to the Bank in the form of loan taken in the name of industrial project.” (para 13)

The Writer is an Associate Professor at School of Law, BRAC University.