Why wilful defaulters deserve even tougher punishment

Jayant Sinha, Minister of State for Finance, has gone on record saying there are 7,686 wilful defaulters in Indian banking system owing Rs 66,190 crore to their lenders. Wilful defaulters are those who have the ability to pay back but wouldn’t do so deliberately. Such defaulters are largely big corporations. An old joke is doing the rounds in financial circles that for a Marwari businessman, there is considerable pride in being declared an insolvent (diwalia).



Surely, there is a certain amount of smugness bordering on insolence on the part of those who thumb their noses at our banking system----witness the statement by the renegade liquor baron Vijay Mallya’s the other day that if he were arrested, the nation will not get anything from him or his companies.

Indian banks’ gross NPAs, as at end December, stood Rs 4 lakh crore. If this is juxtaposed with Jayant Sinha’s, the result one gets is as much as 16 per cent of our bad debts are of the wilful default variety. This is alarming, to say the least, because unless reined in, the tribe of wilful defaulters is likely to grow. One had all along thought that the reason for the Non-performing assets (NPA) of banks is largely due to economic downturn and other factors. But, as it turns out now, deliberate (wilful) non-repayment is no less a factor.

The RBI chokes off wilful defaulters from accessing funds from the banks and financial institutions. Also, all the directors of such a company, irrespective of whether they are executive or non-executive directors, also get the pariah status for five years. Market-regulator, Sebi, acting in tandem with RBI, has barred directors of such companies from accessing the capital market as well as from donning the mantle of directorship in listed companies. These are all fine but not enough.

The taste of pudding is in its eating. Extending this culinary principle to the drab world of finance one can say the success of the wilful defaulter tag lies in recovery. Because what is the point in just shaming a defaulter unless he is made to cough up the money he owes to the nation? Apart from ostracizing and shaming a wilful defaulter, immediate steps must be taken to get him to disgorge the ill-gotten assets and money.

In our country neither the marauding politicians nor the buccaneer businessmen have ever been asked to cough up the ill-gotten money. The trial court while holding Lalu Yadav guilty in the infamous fodder scam and estimating the size of loss to the exchequer at Rs 900 crore, nevertheless let him off with a slap on the wrist--Rs 25 lakh penalty plus a prison term.
The Company law does enable and empower the liquidator to launch misappropriation proceedings if he feels that men involved in the company were responsible for looting it but it has never happened. What we therefore need is an explicit law that mandates going for the jugular of the wilful defaulter.

The Enforcement Directorate believes the wily Mallya has siphoned away sizeable amount of money abroad. Our law enforcement machinery must acquire modern financial forensic skills so as to get at the bottom of the issue and ultimately recover the ill-gotten money wherever it is----within or without. Foreign governments and banks do not cooperate even in the face of letter rogatory issued by a competent court in India unless a watertight case is made out against the alleged wrongdoer.

The government and the regulators should spare a thought for independent directors if not all the non-executive directors. While a promoter and executive director must definitely bear the cross, an independent director should not be visited with the same consequences for wilful default lest he becomes shy in accepting directorships. Of course he must share the same consequences if it turns out he was equally to blame and was in fact complicit in playing footsie with the promoters and executive directors.

Updated Date: May 05, 2016 07:49 AM