Left without any option but to crack down on the fleeing economic offenders, the government has decided to ask banks to secure deposit of passports of promoters of companies whose cases are being tried under the Insolvency and Bankruptcy Code (IBC). All willful defaulters will also come under this mechanism.
The department of financial services (DFS) has spelt out a six-point reform agenda, making submission of passport details by borrowers seeking Rs 50 crore loans mandatory to ensure a swift action in case of fraud and prevent fraudsters from fleeing the country. This will also help banks take timely action and inform authorities to prevent alleged fraudsters from fleeing the country.
Over 500 cases are being tried under IBC and are at various stages of resolution in the national company law tribunal (NCLT). Most of these cases account for non-performing assets (NPAs) – ranging from Rs 50 crore to Rs 80 000 crore – with various lenders.
NCLT is a quasi-judicial body that adjudicates issues relating to companies in India. It was established under the Companies Act 2013 and was constituted on June 1, 2016.
According to official sources, seizing of passports would be a preventive step.
However, an official of a company, which is being tried under IBC, it could be challenged in courts as it would be wrong to see everyone from the same glass.
Passport seizure has been on the government radar for while. The finance ministry is in the process of collecting passport details of all new borrowers seeking loans above Rs 50 crore. For existing loans above Rs 50 crore, banks have been asked to collect passport details of borrowers within 45 days.
As part of a drive to clean the banking system, the finance ministry last week directed public sector banks to probe all NPA accounts of over Rs 50 crore for possible fraud and accordingly report the cases to the central bureau of investigation. The ministry also asked banks to monitor loans above Rs 250 crore and red flag them whenever the original covenants of the loans are violated.
In recent times, several big defaulters like Nirav Modi, Mehul Choksi, Lalit Modi and Vijay Mallya have fled the country putting the recovery mechanism in quandary.