Friday, November 23, 2012


The latest Guru we adopted and acknowledged is Arindam, so far as our writing habits are concerned. He's a colleague at Chabiwala Bank, and it happened while we were chatting over cabbages and Kings. It is alleged that there is an elusive thing called 'credit expertise' in Indian Banking, and worse, it is rumored that the writer possesses it in some measure. Start a page on Facebook, Arindam suggested, where you would share your views with us. But then Junior felt it had better be a blog  for better accessibility, and so this re-incarnation

1.33 is the figure the tribe swears by, a sort of holy badge or emblem and so the page was christened accordingly, the Fahrenheit prefixed on the analogy of Michael Moore's excellent documentary, for 1.33 alone looked bald.

We don't plan to emulate the King of Hearts from Alice in Wonderland ("Begin at the beginning,", the King said, very gravely, "and go on till you come to the end: then stop”). At the top of our mind is the Legal angle currently. How much does Law have to do with Credit? Basically to the extent it concerns contractual obligations of the Bank and the Borrower. Of course the Laws concerning recovery,like SARFAESI and the DRT mechanism also get a lot of attention. But we'd stick out our neck and assert that the intimacy of the connection is over-estimated, which happens because normally, to begin with, the Dealing Officer is a stranger both to Credit as well as to Law. One has frequently seen instances where Credit has indiscriminately made over matters to Law Department, on the slightest hint of a legal angle. For instance, the guarantor to a Cash Credit loan, alas, dies. The branch seeks guidance from the Controller as to what steps are required. There are legal angles, albeit of routine nature, but the file is commonly handed over to Law. The account, if of a moderate size, falls due for renewal, which is not done by anybody pending compliance of the legal requirements, and an otherwise good account, in due course, becomes an NPA and a good business run by good people falls a prey to the ignorance of the a distinction between the legal angle, and the commercial angle. The RBI requirement of a renewal should have been clearly distinguished and kept divorced from the legal side and a renewal or a continuation approved so as to allow to the business to run unhampered.

Fortunately in our DO days we had the good fortune of working with two excellent Law Officers. The moment a letter reached their hands, they would sniff it -whether it was a legal matter or an administrative matter, and if the latter were the case, throw back the file at you and castigate you for not knowing the difference. In the above-said hypothetical case, they wouldn't have touched the issue with a barge-pole. You'd have been told that these were very common issues on which the Bank had a host of circular instructions, which you should take the trouble of going through before rushing to us.

Well, we have picked up some Case Law on common misconceptions on legal matters, which always cause lot of inconvenience to Bank and Borrowers. (The issues are not connected to the above 'renewal' issue, mind you.)

1. A mortgage is not invalid in the absence of a 'Mutation'. We quote two High Court Judgements:

The first case is about the impact of a Mutation on a Title to a property and the Allahabad HC deals a judgement contrary to the view of the Lower Court:

" ...the Lower Court.. has been swayed away by the so called mutation in the revenue record in favor of Inder Kaur. Mutation of a property in the revenue record does not create or extinguish title nor has it any presumptive value on title. It only enables the person in whose favor mutation is ordered to pay the land revenue in question. The learned Additional District Judge was wholly in error in coming to a conclusion that mutation in favor of Inder Kaur conveys title in her favor. This erroneous conclusion has vitiated the entire judgment."

(Second Appeal No. 759 of 2009. Decided On: 24.05.2011-
Appellants: Nagar Palika Parishad Vs. Respondent: Zakir Hasan and Ors.)

Second case is of a similar nature wherein the Karnataka HC maintains the validity of an EM conflicting with Mutation in Revenue records:

"It is to be borne in mind that every revenue record maintained for whatever purposes cannot be treated as record of right. There are certain revenue records, which are maintained in the usual course of administration under the governmental orders issued from time to time. Such records are not maintained under any relevant provision of law. The entries made therein may not be after making necessary enquiry with due notice to the persons who are likely to be affected by the entries made in such revenue records. That a distinction is to be made between the revenue records which are maintained by the administration with reference to statutory enactments and such records, which are maintained under administrative instructions issued from time to time by the State and its agencies. For instance, every record of right prepared and maintained under the provisions of the A.P. Rights in Land and Pattadar Pass Books Act, 1971 shall be presumed to be true until the contrary is proved and until it is otherwise amended in accordance with the provisions of the Act. Every owner, pattadar etc., may apply for issue of passbook and the title deed and the title deed so issued duly certified by the competent authority shall be the title deed in respect of an owner/pattadar and it shall have the same evidentiary value with regard to the title for the purpose of creation of equitable mortgage under the provisions of the Transfer of Property Act, 1882 as a document registered..."

(Regular First Appeal No. 560 of 1987-Decided On: 21.04.1993
Appellants:State Bank of Mysore Vs. Respondent: M/s. S.M. Essence Distilleries Pvt. Ltd. and others)

'Evidentiary Value' has another interesting side-light. It is a common misconception that a valid EM cannot be created on basis of copies of documents. As we always tell our people, when an EM is created by the title holder, he or she creates charge on the property, and not on a set of papers, which have only an 'evidentiary value.'

(Statutory Warning: this dissertation does not purport merely to be 'the views of the author', but boldly asserts possession of Legal authenticity and rectitude... -to be continued...)

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