India's banking community is shocked and rattled by the arrest of former SBI chairman Pratip Chaudhuri by the Rajasthan Police on a warrant issued by a Jaisalmer magistrate. The case in question is about a hotel property in Jaisalmer that defaulted on loans from SBI. The loan was subsequently sold to an ARC which sold it to an NBFC. The NCLT had cleared this sale; even the Supreme Court had cleared the sale and quashed an earlier FIR against the ARC personnel.
But all this did not stop a judicial magistrate from issuing a non-bailable arrest warrant against Chaudhuri. More bizarre, Chaudhuri was denied bail for an offence that police earlier considered civil and not criminal. What worries bankers and all financial sector experts is the arbitrariness of the process and the few safeguards available to a citizen. Firstly, can the police of one state arrest an individual in another state? Secondly, shouldn't there be some initial summons where a citizen can defend himself and prove his innocence? More bizarre is that any director of an ARC can be arrested by the police, taken to a judicial magistrate and then refused bail in a case where an earlier FIR was quashed by the Supreme Court.
In an interview to CNBC-TV18's Latha Venkatesh, Shardul Shroff, Corporate Lawyer at Amarchand & Mangaldas, said, Chaudhuri's arrest is bizarre unless it is a dispute of valuation where a property of Rs 200 crore was sold at Rs 25 crore and someone has alleged that it is a convenience sale.
"This is bizarre, a notice should have been issued to Pratip Chaudhuri and he should have had a right of say. However, I am speculating that, if there is a valuation dispute and a property of Rs 200 crore has been sold at Rs 25 crore, then there could be somebody's allegation that this is a convenience sale. That is the only reason I can fathom. Otherwise, it is totally bizarre."
RK Bansal, MD of Edelweiss ARC, said, promoters alleging undervaluation of property is a usual excuse but issuing warrants and arresting the ex-chairman of a bank when the case has been cleared by NCLT, NCLAT and Supreme Court is setting a dangerous precedent.
"Property value is the usual excuse taken by most borrowers and promoters, that the value is high and the bank is selling at a lower price. However, this is a dangerous trend that the ex-chairman of a bank and the entire ARC board is being issued warrants or arrested when the case has been cleared by NCLT, NCLAT and Supreme Court."
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