A key take-away from the untimely death of art director Nitin Desai is that we seem to be still far away from de-criminalising lending activity. The government has amended the Prevention of Corruption Act (PCA) to make life easier for lenders, but this doesn’t seem to have changed the situation on the ground much. Even today, bankers remain fearful of action by the three Cs—CVC, CBI and CAG—as also other law enforcement agencies. For example, the changes to the PCA require agencies to seek prior nod from appropriate authorities before proceeding to arrest a bank official accused of misdemeanour, but three years after the amended Act came into force, a former chairman of State Bank of India was arrested and sent to judicial custody for two weeks.
The deceased art director’s family claims he was driven to suicide by lenders who were harassing him. ECL Finance, a subsidiary of the Edelweiss Group, and Edelweiss Asset Reconstruction Company (ARC) were apparently pressuring Desai to repay loans to the tune of `150 crore and `35 crore given in 2016 and 2018, respectively, to set up a theme park and for working capital. With the project running into trouble and becoming financially unviable, the company was referred to the National Company Law Tribunal (NCLT) in 2022 and admitted for insolvency proceedings last month. So, the proper process seems to have been followed. Desai’s appeal to the appellate tribunal was rejected on August 1. A day later, Desai was found hanging in his studio at Karjat.
The police have filed a First Information Report (FIR) against some top executives of Edelweiss group companies, including the chairman and the insolvency professional, for abetment to suicide after Desai’s wife made some serious allegations against them—all of which have been denied by the finance company. One hopes the matter is properly investigated before any further action is taken. This is critical in view of the charges and counter-charges in the case. Desai’s wife has alleged that officers of Edelweiss were responsible for causing mental stress to her husband and harassed him. She even referred to on an audio clip by Desai in which he made allegations against Edelweiss and is heard saying that “they pushed me to commit suicide even though I didn’t mean to”. However, in a filing with the stock exchange, Edelweiss
has stated the interest rate charged was as per prevailing market rates; legal processes for recovery are elaborately established under RBI and IBC guidelines and were duly followed by Edelweiss Asset Reconstruction Company”.
The fact is that the Desais accepted the loan and had an obligation to repay it. Edelweiss, or for that matter any finance company, cannot be blamed for taking legal action through the proper channels. In this instance, no evidence to the contrary has been found so far. The short point is that such FIRs and summons will deter bankers and other lenders from lending to any business other than the safest ones, much to the detriment of many potentially good entrepreneurs. Lenders are anyway highly risk-averse, and such episodes will only make them more fearful. While efforts must be taken to prevent loan recovery agents from intimidating borrowers, the government must ensure that lenders are not put through the wringer every time they make efforts to recover their money.