Wednesday, November 28, 2012


In our initial blogs we have cautioned our readers against curiamphobia, that is the fear of Courts, driving home the point with Case references from the Honourable High Courts and the Supreme Court. But there are many angles to the relationship between the Credit Analyst and the Rules (ya-‘of the game’ if you are the Sportsy type!) A fundamental belief which has already been put forth by us on an earlier occasion is that Credit and the Legal are at best distant cousins, far from being brethren. The following exchange we had a few days back with a senior officer we were interviewing for the post of Credit Processing Cell head is illustrative of the malady. In the capacity of the CPC head, he would be in charge of all loan proposals of Rs. 10.00 crores and above, not an amount to be sneezed at.
The question we posed was like this: In the states of the North East, save may be Tripura, normally an industrial unit should have a local entity as a co-owner in some manner, and rightly so. A Company ABC Ltd. is proposed under the Companies Act, under which the local partner is setting up a state of the art hospital in association with a well known specialized group from the mainland. The share capital the local person is inducting is in the form of land worth Rs. 5.00 crore. Now, as things stand today, property registration is on hold in the state. Can the land, which is at the moment non-transferable, be so inducted, tell me..? Without batting a eyelid, our friend said “I’ll forward the file for legal examination..”. Zero out of Hundred, my friend, we exclaimed. The issue is not a TP Act issue at all. If a non-transferred property exists in the books of a Company, the Auditors are required merely to make a mention of the absence of transfer in the Notes, but the property can be inducted as share capital. In short it’s a legal issue for the promoter, but not for the Company, which as we all know, is a separate entity. So, don’t rush for the Law Officer’s cover at the drop of a hat, we all know what hemmers and hawers the tribe is, and what bleak view the legal fraternity holds about itself is evident from the last entry of our good old blog….

Secondly, what’s a legal opinion? For most analysts it’s like operating a vending machine- drop in a coin, and lo…out it comes! No my friends, it’s not so simple. Now tell us…in the state of Meghalaya, can agricultural land be mortgaged to a lender for non-agricultural purposes? No, goes common wisdom, for its not so in maybe Assam. We had the issue legally examined. How..? First we went through the Meghalaya Statute ourselves. It turned out that there is no distinct land use defined anywhere- ‘land’ is just ‘land’ – not ‘residential’, ‘agricultural’ or ‘industrial’ and it can be charged for any purpose. So progressive. Keep things simple, we are told by the best brains.  Armed with the two Bare Acts, we went to our Senior Counsel, showed her the works, and by evening we had in hand an opinion conforming to our research, and it surprised the most seasoned top bureaucrats of the Government!

Now for the thing we started with- the practical side of Analyst vis-à-vis Rules, or we’ll broaden it to Public Sector FI executive vis-a-vis Rules.

Broadly, you will be confronted with two types of Rules- External and Internal. By external rules we mean Law, be it the IT Act, Companies Act, Anti Money Laundering legislation, the CrPC, the DRT Act, etc. etc. Internal Laws, those which are Internal to your institution or your department, or your person, could be written or un-written. They are the Circulars, the Manuals, why, even your Morals, the Ten Commandments…Important thing is, a violation of the first set could end in Prosecution and worse, whereas the violation of the second set could lead to service related issues, you know what. Thus not acting on an Income Tax attachment order could lead to State vs. You, whereas overstaying your sanctioned leave would earn you at the most a memo. So, it’s best to pause and think when you are considering transgressing a rule- you are jumping a red light if the rule is external, but merely annoying your Mom or Spouse if you momentarily turn you head to appreciate a beautiful face while riding a bike!

On the other hand, look at the liberal interpretation of Law as illustrated in our previous Posts. The institution may not lose in the Court relying upon the Case Law, but you could be in trouble over the violation of internal procedure and rules. For instance, a material credit into a loan account by a borrower revives the debt for purposes of the Limitation Act, but if you Institution’s rules say that the officials should obtain a Balance Confirmation every 6 months, you could be questioned for violating the internal rules.

Time for a vow: this is becoming a legal blog it seems. So in our next entry, we shall talk about money…the business of lending…


A -who else?- blonde goes for an interview for the post of financial executive. What do you think eminently qualifies you to become a Finance Executive?...asks the Boss. “Wellllll….I’ve always loved to handle money you know… says the lady!

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