Banks, NBFIs struggle to recover loans as bankruptcy cases linger

In 1983, Adarsh Engineering Workshop in Savar secured around Tk4 lakh from the local branch of Agrani Bank. Due to non-payment, the loan, including the interest, increased to a staggering Tk11 lakh in 1990.

In July 2001, a bankruptcy court declared Md Shahjahan, proprietor of the business, bankrupt and mandated the liquidation of his assets to recover the outstanding loan.

In the following month, the High Court stayed the judgement, temporarily halting any further legal actions or enforcement related to the case.

The bank's lawyer SA Rahim told The Business Standard that the Appellate Division had upheld the High Court's order. As of now, the appeal remains pending with the High Court due to repeated time petitions filed by the defendants.

Md Shahjahan is among 61 individuals who were declared bankrupt but subsequently obtained stays on their judgements from the Supreme Court in the last 10 years.

According to sources in the Supreme Court, the bankruptcy law, enacted in 1997, has overseen around 800 cases in bankruptcy courts. In these cases, 80 individuals have been declared bankrupt over the past decade, primarily due to actions initiated by various banks.

Notably, 61 of these individuals appealed the judgements, securing stays on the proceedings from the High Court. These 61 individuals owe a combined amount of around Tk3,000 crore to various banks and financial institutions.

Barrister Tanjib-ul Alam, a corporate law expert, told TBS that when a bank sues a person for bankruptcy, it leads to new trouble. It can be observed that defaulters go to the High Court with various excuses and manage to get the proceedings stayed. As a result, even after being declared bankrupt, they face no issues.

Experts say the last legal step to recover loans is to seek a declaration of bankruptcy for individuals or companies. Additionally, if a person or organisation is financially unable to pay the creditor's money, he or she can also file for bankruptcy.

According to the bankruptcy court, after a person gets a judgement in favour of declaring himself or herself bankrupt, the bank or financial institution cannot recover any more loans. However, when a person is declared bankrupt in a case filed by a bank, the judgement is stayed by filing a writ and revision petition with the High Court.

According to sources in bankruptcy courts, there are 213 pending bankruptcy cases involving a staggering amount of Tk3,500 crore in defaulted loans with banks and non-bank financial institutions (NBFIs).

Various banks and NBFIs initiated 118 bankruptcy proceedings against individuals, seeking to recover around Tk2,000 crore in defaulted loans, while the remaining 95 cases were moved by individuals seeking bankruptcy protection.

Muhammad A (Rumee) Ali, who previously served AB Bank as its chairman and the Bangladesh Bank as a deputy governor, told TBS that there are many loopholes in the law in Bangladesh.

"If a person is declared bankrupt by the court in a case filed by himself, he accepts it frankly and enjoys it because there is no such strict provision in our law. Moreover, most people who file for bankruptcy do so intentionally. In many cases, it is observed that the person seeking the declaration of bankruptcy takes loans from banks and launders all the money through hundi," he added.

This seasoned banker said in the US, the UK and Austria, when a person wants to declare himself bankrupt, the court arranges an investigation, which is not the case in Bangladesh. "The Bankruptcy Act of Bangladesh also needs to have such a provision," he added.

When to file for bankruptcy

Advocate Shah Mohammad Ahsanur Rahman, a bank company law expert, told TBS that when a defaulter fails to repay the loan, which exceeds the value of all his own properties, including the mortgaged property, then he seeks protection from the bankruptcy court. According to Section 10 of the Bankruptcy Act, a defaulter can file a case for the court to declare himself bankrupt, and a bank can also file a case for declaring a defaulter bankrupt.

The court, upon hearing the arguments of both parties, appoints a receiver to prepare a report on all the movable and immovable properties of the respective defaulters. Following the submission of the report, the court rules on seizing the property in favour of the bank.

The lawyer said, according to the Bankruptcy Act, when a person is declared bankrupt, the receiver appointed by the court can take all the property, leaving behind assets worth Tk3 lakh for the individual and his or her family.

Additionally, if someone is declared bankrupt, according to the law, that person cannot participate in any election, obtain a loan from any bank, or obtain permission from court to travel abroad.

He noted that when individuals file for bankruptcy, the majority do so intentionally.

Like Adarsh Engineering Workshop, the five owners of Khairul Electronics in Old Dhaka took Tk16 lakh from the Sadarghat branch of Agrani Bank in 1985.

In 2003, the bankruptcy court in Dhaka declared them bankrupt. The defendants went to the High Court and secured a stay on the proceedings. Agrani Bank's lawyer Mahfuzul Islam told TBS that there has been no further update on this case since then.

Halima Textile represents a glaring example of avoiding repayment of a loan.

Due to various reasons, even after this company was closed down in 1994, about Tk13 crore owed by Pubali Bank has not been recovered till now.

Finally, in September 2020, the company filed a suit in the bankruptcy court of Dhaka to declare the company's chairman and director bankrupt, but the trial has not yet started.

According to the bankruptcy court of Dhaka, the defendants in this case were given 24 times over three years, until October, to respond to the summons, but they did not respond.

Pubali Bank's lawyer Nasir Uddin told TBS that now the bank will apply for a one-sided hearing in this case. Afterward, another appeal will be filed, requesting that the court appoint a receiver to take over the property of the owners. Subsequently, the trial will commence.