E-Kantipur

KATHMANDU, JUL 01 - Bankers have continued to push for a judicial review of the Supreme Court's verdict of April 27, 2009 allowing release of third-party guarantee for bad loans claiming that it would have "far-reaching implications" on the entire banking sector.

A joint bench comprising justices Tahir Ali Ansari and Prakash Wosti had ruled that third-party guarantor Sangita Tripathi's land acquired by Lumbini Bank for the borrower's failure to repay loans should be returned as Tripathi had paid the original guarantee amount to the bank.

Tripathi's land at Maharajgunj, Kathmandu measuring eight annas, which had been put up as collateral for a loan deal on Feb. 15, 2001 had been valued at Rs. 2.4 million.

She took back her land as per the court verdict after paying the amount to the bank though the land price had soared by many times the original valuation.

Lumbini Bank has already applied for a judicial review of the case on August 7, 2009. Sensing urgency in the verdict's implication, the Nepal Bankers Association has taken up the issue and pushed hard for the judicial review. An NBA delegation met with Chief Justice Ram Prasad Shrestha last week to brief him on the implications of the verdict on the recovery of bad loans. NBA president Sashin Joshi said that they asked the chief justice to give priority to the case for judicial review as it would lead the financial sector to anarchy.

"It will encourage default of loans because borrowers believe they may claim back their collateral that have turned non-banking assets after several years by paying the initially valued amount," he said.

The bank has so far not received the amount paid by Tripathi that she paid as per the SC decision.

She has handed over the amount to Dilli Bazaar Land Revenue Office. "The case involves a small amount of third-party guarantee, but the precedent it establishes is alarming," said Shovan Dev Pant, chief executive officer of Lumbini Bank.

Tripathi had offered her guarantee for the borrower Bhisma Man Shrestha for his Hetauda-based Harati Wire Industries, which has since collapsed and is yet to repay loans worth Rs. 90 million according to the 2005 valuation.

The court's verdict is based on the notion that the third party should not be made liable for unlimited guarantee given the fixed value of third-party guarantee during loan deals.

On the other hand, only Harati had been made liable for payment of outstanding loans when the bank filed a case at the Debt Recovery Tribunal.

Thirdly, the bank acquired the land at an undervalued price against its own valuation. The bank had fixed the valuation amount at Rs. 4.8 million before acquisition in May 2005. The bank acquired it at Rs. 3.5 million.

Tripathi's lawyer Uddhav Kumar K.C. said the verdict is clear third-party guarantors cannot be made liable to liabilities.  "It is unjust to make third parties liable if they are not defaulters," he added.

Posted on: 2010-07-01 08:22

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