Shortfall documentation and others lapses

Shortfall In Documentation And Others Lapses

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Shortfall In Documentation And Others Lapses

Shortfall In Documentation And Others Lapses.

 Lapses : Lapses arise out of any kind of irregularities, misstatements, non-compliances of existing policy & procedures of the Bank, law of the land by which the Bank may incur financial losses.

Moreover, sometimes non-compliance of existing policies & procedures may not cause any financial loss with immediate effect but can result in erosion of reputation. At the same time any malpractice in Banking, misuse of offices and its fund is defined as lapses.

Types of Lapses: Based on the gravity of the irregularities, lapses can be classified in 4 (Four) groups as follows:

a) Minor Irregularities

b) Major Lapses

c) Deemed to be Serious Lapses

d) Serious Lapses

DOCUMENTATION, STEPS OF DOCUMENTATION.

DOCUMENTATION:

  • Documents are the physical embodiment of the existence of investments. Documentation is the execution of documents in right form & lawful manner. Documentation forms a permanent record of the rights responsibilities and obligations of the executants that the borrowers and guarantors towards the lender (Bank).

STEPS OF DOCUMENTATION.

  • Preparation of deed- Banks Printed Forms set as per Terms and condition and nature of investments.
  • Legal Opinion- as per latest circular from the panel advocate of Bank.
  • Executants and Execution- Signature capacity.
  • Witnessing- Signature capacity- style.
  • Stamping of Documents as per Stamp Act 1899, Amendment 1998 Stamp Schedule.
  • Registration as per Registration Act -1908.
  • Safe Keeping / Preservation.

BASIC GUIDE LINE FOR DOCUMENTATION.

  • A Bank officer must adopt a strict professional approach in the execution of documents and meticulous about risk pen pencil, stamp, hand writing.
  • Selection proper forms (Banks printed forms) of documents set as per Banks requisites and sanction terms.
  • The execution of documents should be done in the presence of officer responsible obtaining documents, that officer must able to identify the borrower personally.
  • The Borrower(s) should accept the Sanction Letter by putting signature in duplicate copy of sanction letter in one sitting in the same handwriting using the same ink and pen at the time of execution of all charge documents. etc

WHEN DOCUMENTS INVALID.

Documents, which are not acceptable in the court of law following cause, are mainly behind the invalidation of bank document.

  • Alteration and interlineations in documents if it is done after execution.
  • The mis- statement misleads delivers a deed.
  • If the party is blind or illiterate and if the documents are read falsely.
  • The party executing the documents is not competent.
  • Improper stamping / under stamping.
  • Want of Attestation or witnessing if necessary.
  • Failure to Registered with competent authority within specific time.
  • Ambiguous schedule of the offered security.
  • Forgery, tempering deleting of documents.
  • Deed executed as a result of undue influence or forcefully.
  • Instrument executed in blank (amount, security, liability) with a bad intention.

STAMPING OF DOCUMENTS:

  • The stamp Act, 1899 with schedules has classified. Various kinds of documents indicating the amount of duty levy able on than. The liability of instrument to stamp must be determined on or before the time of execution because validity of documents depends on the amount of stamp.
  • Last Amendment in the year 2012. Effective from 1st July’2012

 TYPES OF STAMP.

JUDICIAL STAMP:

  • Judicial Stamps used mainly for Judicial purpose in filling suits and for payment of add-value rum Court fee.  Judicial Stamps paper in the Court also used for certified copy of decree.

NON- JUDICIAL STAMP:

  • Non judicial stamps used for preparation of contact deed or sale deed. In Banks these stamp used mainly in -Mortgage Deed both registered equitable, Irrevocable Power of Attorney. Deed of agreement, Deed of Redemption. Affidavit etc.

 Adhesive Stamp

  1. Revenue Stamp;-
  2. Special Adhesive Stamp / Impressed Stamp.

LAPSES IN SUIT FILING, FOLLOW UP & MANAGEMENT OF COURT CASES

Taking legal action under Artha Rin Adalat Ain, 2003 & Negotiable Instruments Act, 1881 is the last resort for recovery of stuck up investments. When all procedures fail despite vigorous persuasion to recover the Bank’s dues then the bank or financial institution may take legal action under Artha Rin Adalat Ain, 2003 within the time limit as mentioned in the Section 46 of Artha Rin Adalat Ain, 2003.

PROVISION REGARDING OBTAINING CERTIFICATE SECTION 33(5) & 33(7)):

  • i) Certificate of possession, enjoyment & sale is issued under Section 33 (5) and right of ownership of title is issued under Section 33 (7).
  • ii) When sale in auction under Section -33 (1) & 33(4) is failed and liability of the A/c is adjustable with the market price of the property then the certificate may be obtained under Section-33 (5) or Section 33 (7).
  • iii) Since the registration & mutation corresponding to latest khatian do not required against obtaining certificate U/S 33(5) so it is better to obtain certificate under Section 33 (5) for avoiding expenditure & difficulties to dispose of the said property in order to adjust the liability.

DISPOSAL OF THE PROPERTIES OBTAINED UNDER SECTION –33 (5) & 33 (7):

  • i)     Where right to sell, possession & enjoyment is vested U/S-33(5), in that case Bank shall try to sell the property through auction. If the Bank fails to do that and where any shortfall amount is assessed by deducting the reasonable market price of the mortgaged property from the up dated liability of the Judgment debtor then second Artha Jari Case to be filed within one year of issuance of certificate.
  • ii) If the Bank fails to sell the property within 6 (six) years from issuance of certificate U/S-33 (5) of Artha Rin Adalat Ain – 2003, then after expiry of this period ownership of that property will be vested to the Bank automatically. Bank may also obtain the right of ownership of that property within the stipulated period (six years) by placing a prayer to the concerned Court.
  • iii) Where certificate of ownership is issued in Bank’s favor U/S-33 (7) of Artha Rin Adalat Ain, 2003, Bank can sell the property straight way to any purchaser available.
  • iv) If it is required to have the possession of the property by the court under Section 33(5) & 33(7), the Artha Rin Court may put the possession of the property by the written order to the decree holder as per Section 33(7A) of Artha Rin Adalat Ain, 2003.

LAPSES / OBSTACLE FOR ESTABLISHING THE BANK’S CLAIM IN ARTHA RIN SUIT:

  • (i) The Branch does not maintain the Investment File including Charge Documents
  • (ii) The Branch does not keep the acceptance copy of sanction letter from the Borrower
  • (iii) Each and every Document must be entered “Safe-in Safe -out Register” stating the Date of receives, name of Documents, number of page.  If the Documents is to be returned to the party after adjustment of investment then necessary entry to be passed in Safe-in Safe -out Register. This Safe-in Safe -out Register must be under Managers custody. Keys of safe/ almirah must be entered into Branch “Key Register” Custodian should check time to time documents safe/ almirah and spray insecticide to protect documents from insects.
  • (iv) In case of missing any document and if the Branch does not maintain the “Safe-in Safe -out Register”, it does not possible to identify whereabouts the said documents.
  • (v) The liability of instrument to stamp must be determined on or before the time of execution because validity of documents depends on the amount of stamp.

FRAUD IN DOCUMENTATION

  • Fraud means deceit or trickery deliberately practiced in order to gain some advantage dishonestly. Fraud is intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right; it is an act of deceiving or misrepresenting or cheating.

Frauds are operated in this area of Investments may be studied with the reference:

  • Murabaha / Baimuajjal (Cash Credit Pledge / Hypothecation) Accounts.
  • Investments Accounts
  • QTTB / Bills purchased / Negotiated.
  • MPI, PSI, Bai-salam (Finance of Foreign Trade -Import & Export)

FRAUDS IN MURABAHA/BAIMUAJJAL (CASH CREDIT PLEDGE / HYPO) ACCOUNTS:
 In case of Murabaha / Baimuajjal (Cash Credit advances) investment frauds are generally committed by depriving the Bank of its Security (both primary & collateral).In the matter of Pledge the Banks may be cheated in one or more of the following manners.

  • Creation of Pledge. Through the spurious goods.
  • Inflating the value of goods.
  • Pledging the same goods to more one Banks.
  • Keeping the several hidden entrances of the godowns.
  • Creation of charges on offered security by false name.

FRAUD & FORGERY RELATED WITH COLLATERAL

  • Creation of Mortgage on the same Property against different borrowings.
  • Willfully offered cumbersome collateral security.
  • Mortgage created over sold property.
  • Valuation Certificate is false one, sometimes excess value is shown than actual value.
  • Producing forged ownership Deeds – Clone Deeds (Title deeds / parch /rent receipt etc).
  • Executing Mortgage deed in false name (by other than owner).
  • Producing a Document showing certain schedule but it has no actual existence.
  • Getting the delivery original title deeds from bank with the connivance of bank’s staff before adjustment of loan.

PUNISHMENT FOR LAPSES:

Punishment is an action to be taken by the management of the Bank for committing lapses / offences done by employees of the Bank. Punishable offences are activities, for which higher management thinks to take administrative action. Auditors should detect level or quantum of lapses/ offence and report to higher management.

 

Contributor:

Mr. Md. Sayed Hasan, AVP, SAMD, SIBL,HO,Dhaka/