The Paradox of the Money Loan Court Act of Bangladesh - Do we need a law reform?

It is a common practice in Bangladesh that whenever a claim for recovery of a loan against a company is instituted in Bangladesh, the Shareholders of the borrowing company, be it a natural person or an entity, are added as Defendants to the said claim. While this has remained a practice since the introduction of the "Money Loan Court Act, 2003" (Artha Rin Adalat Ain, 2003), what arises as a fundamental question for the Defendants is "Why are they even added to this claim by the creditors?" From my own experience, I can confirm that we have raised this question as a defence in a number of cases. I will try to put our arguments as briefly as possible here.

The guidance regarding this question can be found in Section 6(5) of the Money Loan Court Act, 2003, where the law clearly states that "a lender can institute a suit under the Act for recovery of ‘loan’ against the principal debtor, or a third-party mortgagor or a third party guarantor". A layman's interpretation of this section clearly indicates that a natural person/entity can be added as a Defendant when the said person/entity has acted as the "third party mortgagor" or "third party guarantor" of the principal borrower. Once this is the case, the court can then jointly or severally pass a decree against all the parties.

This means that if the Shareholder/Director of the principal borrower company did not act as the third-party mortgagor/guarantor the law automatically excludes the liabilities of the said third party from the loan. The courts in the majority of the cases have accepted this submission of ours and have decided in favour of us.

However, things would have been easy if the difficulties ended here. One of the greatest challenges to overcome is the fact that Section 34 of the Act states that as a procedure of execution of the decree passed by the court against the principal borrower if the judgment debtor fails to realise the loan from the borrower, the judgment debtor may make an application against the borrower for civil jail compelling the borrower to pay off the loan. This is still understandable, but Section 34(3) of the Act states that "if it becomes necessary to implement the order against any company, partnership firm or any other corporate body by them to civil jail and comprising who the natural person has been formed, shall be liable to confined in the civil jail individually and collectively". Upon a plain interpretation, this means that a Shareholder/Director of the principal borrower company can be confined to civil upon the principal borrower's failure to pay off the loan after the decree. This creates a direct contradiction with what has been said in section 6(5) of the same Act. The Act which has expressly relieved the Shareholder/Director from liabilities since they have not acted as the third party mortgagor/guarantor can at a later time confine them to a civil jail upon the principal debtor's failure to pay off the decretal amount.

It is now more than likely that this question is going to arise soon before the courts, and now what needs to be seen that whether a question of violation of fundamental rights can be raised as an argument to indicate that law reform is more than definitely required.

#Bangladesh #Litigation #Loanrecovery #Defaulter #Lawreform #Money #Debt #Debtrealisation #Civillitigation #Bankinglaw

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