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
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…
Tailpiece:
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!
Interesting insight.. Thanks!!
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