Standard Chartered Bank (SCB), the largest foreign bank in India, is under fire for purchasing bad debts without an appropriate licence. The Reserve Bank of India has pointed this out in response to an RTI application. The issue came to light in the debt recovery tribunal, Delhi, in a case involving SCB?s purchase of bad debt from State Bank of India (SBI). The tribunal has also rapped the UK bank for ?serious irregularities committed in the name of amicable settlement?.

Under section 3(4) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interests (aka Sarfaesi) Act, only asset reconstruction companies (ARCs) can take over bad debts. SCB is not authorised to buy the debts of other banks, as it does not have the necessary licence.

The case involves SBI transferring debts and securities worth Rs 200 crore to SCB for just Rs 2 crore in May 2007. Among other debts, SCB took over those of Hindustan Tradex and initiated recovery proceedings against the company before the tribunal. In the course of the proceedings, SCB moved an application to withdraw the case and it was only then that the alleged irregularities came to light.

Replying to an RTI application, RBI recently clarified that SCB does not have a licence under the Sarfaesi Act to buy debts with other banks. SCB, however, told SBI that it had obtained a certificate of registration as a securitisation & ARC.

SCB sought to withdraw the case on the grounds that there was a one-time settlement of

Rs 9.6 crore for the debt, which was originally worth Rs 75 crore. Interestingly, in a similar case for the recovery of dues filed by Punjab National Bank (PNB) before the tribunal, SCB had objected to such a settlement, arguing that ?the value of mortgaged assets, though very high, has been sold for a very inadequate consideration in connivance with the officers of the bank?.

In response to an email from FE, an SCB spokesperson said: ?Banking is a regulated sector and we do not do what we are not allowed to do in India by RBI.?

The tribunal?s presiding officer, AK Tripathi, observed that there is no provision by which an applicant bank can withdraw a case under the Recovery of Debts Due to Banks & Financial Institutions Act.

Tripathi also found that settlement provisions under the Civil Procedure Code would not be applicable in this case as the bank has neither abandoned its original case nor any part of its claim against Hindustan Tradex–requirements for withdrawal of a case under the code.

Putting the interveners? submission on record, Tripathi concluded that applicant (SCB) as well defendants (Hindustan Tradex) have concealed material facts. ?Just a few days back, I have pronounced an order in (the) case of Arcil vs Deep Special Steel Ltd, along with eight other cases, thereby bringing serious irregularities committed by the applicant bank in name of amicable settlement,? Tripathi added.

He further said, ?In all those cases, notice has been sent to the RBI governor asking him as to whether RBI approves such settlement wherein the applicant banks/FIs have sacrificed huge public funds and granted relief and concessions to the borrowers knowing fully well that they own and possess enough securities and personal assets as well to repay the loan.? The tribunal further directed SCB to disclose details of the alleged sale of mortgaged assets.