Documentation on Loans and Advances

Md. Najir Hossain

Faculty Member, BIBM
Document:

Document means any written record which serves as an evidence in respect of a transaction.
According to the Indian Evidence Act-1872 (Section-3), Document means any matter expressed or described
upon any substance by means of letters, figures, marks or by more than one of these means intended to be used
or which may be used for the purpose recoding that matter.
Thus anything which is obtained for the purpose of recording is called document.
Documentation:
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).

It refers to the process involved in taking documents right from drafting to the execution and ultimate
recording in the appropriate register.
Importance of document:

Documentation does establish a legal relationship between the lending banker and the borrower
Documentation assume the character of primary evidence in any dispute between the parties of loans
and advances
Documentation comes to the rescue of the banks in the court of law

Before starting documentation bank officer who takes documents must consider the following
preconditions:-
a. Nature of Advance and purpose
b. Nature of Borrower
c. Nature of Security and Mode of Charging
d. Charge requiring registered or not
e. Charge documents to be stamped or not,
f. If stamped amount and types of stamp.
g. Special Conditions for document as per sanction advice
h. Capacity of Executants and signing Capacity
i. Bank's supplied printed document sets and their contents.

Steps involved in documentation:

Drafting of documents
Filling of documents of printed nature
Execution of documents
Stamping & Checking of impersonation etc.
Obtaining additional papers, if necessary like affidavits, certificates, undertaking and
declaration etc.
Registration
Witnessing
Signature Verification
Recording of documents in the register & Preservation

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Execution of documents:

Competency:
i) A party competent to make a contract must execute the documents.
ii) A minor, lunatic or insolvent shall not have the capacity to execute the documents.
iii) A Company, in execution of documents does not over step the power given in
memorandum. In this case, a copy of resolution passed by the Board of Directors of the
company must be obtained and carefully it should be examined.
Witnessing:

Some of the documents compulsorily required to be witnessed such as mortgage deed, gift deed, Will etc. At least
two witnesses are required for witnessing purpose.
Registration:
All documents need not require registration, but certain documents such as Mortgage Deed, Registered Power of
Attorney etc. require registration.

Stamping & checking of impersonation etc.

Documents to be executed are stamped as per stamp act

an under stamped or unstamped document is deemed that has not been executed for & the same would
not be accepted as evidence in the court of law and can not form the basis of a suit
stamped which are needed to be affixed on various documents are properly cancelled and cancellation is
done in such a way that the stamp can not be used again.
executant of the documents / leasee in case lease deed will pay the stamp duty.
documents are to be stamped according to the requisites stamp as per circular of H. O.

There are four types of stamps

1) Judicial stamp
2) Non-judicial stamp
3) Adhesive stamp / Special Adhesive Stamp &
4) Impressed/Embossed stamp

Judicial Stamp:-
Judicial Stamps used mainly for Judicial purpose in filling suits and for payment of addvaluerum 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
I. Revenue Stamp:
Revenue Stamp used for any receipt of money. In banks mainly in Promissory Note. Debit Balance Confirmation,
Credit Balance Certificate, salary register etc.
II. Special Adhesive Stamp
Special Adhesive Stamp used in banks mainly on Charge documents-Letter of Lien , Letter of Hypothecation ,Letter
of Pledge, Letter of Continuity, Letter of Guarantee, Letter of Credit Application Form , Letter of Trust receipt etc. This stamp
affixed on banks printed form and duly Impressed by the Collector of Stamps. Tk-300=( TK Three hundred) only stamp duty is
to be required for above documents.

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III. Embossed Stamp:- Embossed Stamps generally used by Notary Public, CCI&E , & other Govt. , Semi- Govt.
authority through pressing machine on the document.

General guidelines for proper execution of documents.

The following precautions should be taken in the matter of proper execution of documents:
1) The documents should be executed in the presence of the Manager or any other officer of the bank.
2) The documents should be signed in full signature and not in initials. The borrowers signature should be
obtained on each page and all cuttings, alterations, over writings should be authenticated under full
signatures.
3) It is important that the documents should be filled by hand instead of being typed.
4) All documents should be dated.
5) The date on the promissory note and the date on other documents should be the same. Documents should
be taken on Banks standard forms.
6) No addition, deletion or replacement should be permitted in the printed language of the document without
consulting the legal adviser since the banker may not be able to foresee the possible consequences of such
a change.
7) Where borrower is an illiterate person contents of the documents should be explained with the help of lawyer
or a respectable persons.
8) Unless there is specific required in the documents it should not be got attested or witnessed.
9) The documents should be adequately and correctly stamped.
10) The promotes should be stamped with revenue stamps and not postage stamps. The signatures of the
borrower should be partly on the revenue stamp affixed and partly on the space in the same line.
11) All documents taken should be entered in the Documents Register.
12) Documents should be kept in envelopes since punching for the purpose of filing may deface some important
parts of the documents.
13) All envelopes containing documents arranged according to serial number of the register should be lodged
overnight in the strong room.
14) Branches should maintain a due date diary for expiry dates of the documents.
15) No amount should be advanced until all the requisite documents have been properly executed by all the
parties concerned, including the guarantor.

Safe Keeping of Documents

All the Charge Documents Executed by the Borrowers and original title deeds etc. must be taken under the
bankers possession very carefully. Each and every Documents must be entered "Safe-in Safe -out Register"
stating the Date of receive , name of Documents ,number of page. If the Documents is to be returned to the party
after adjustment of debt then necessary entry to be passed in Safe-in Safe -out Register. This Safe-in Safe -out
Register must be under Managers custody. Custodian should check time to time documents safe/ almariah and
spray insecticide to protect documents from insects.
Due Date diary for Insurance policy should be maintained . Validity of document whether expired or not
should be frequently checked in terms of LAW OF LIMITATION.

When documents are not accepted by the courts.

1. When documents are kept blank or incomplete,

2. When documents are unstamped or under stamped,
3. When documents are not registered, which are required to be registered,
4. When documents are attested, which do not require attested,
5. When documents are not attested, which require compulsory attestation, and
6. When documents are barred by limitation.

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Case -1

Promissory Note Effect of verification of signature

Mr. Rahim borrowed a sum of TK 5,00,000/- from the XYZ bank and executed a promissory Note in favour of the
Bank. Mr. Karim, the Manager of the branch, got the promissory note executed before him and then put a rubber
stamp of signature verified and his initial. The borrower fails to repay the advance and ultimately the bank had to
file a suit against the borrower, Mr. Rahim.
On producing the Promissory Note in the Court of law, Mr. Rahim raised an objection that the instrument was not
a Promissory Note but a Bond.
What is the Legal position of the Bank?

Case 2

Cancellation of Stamp

Mr. Rahman , manager of ABC Bank got executed one promissory note by Mr. Rahman For Tk 2,00,000/- on
account of loan granted to him. The revenue stamp affixed to promissory note is less than the prevailing rate (
under stamp) and did not cancelled.
On failure to repay the advance, the bank filed a suit against the borrower. When the promissory note is
presented in the court, the borrower contended that the promissory note can not be produced as a legal
document under the Stamp Act because the stamps are not cancelled execution of the promissory note.
What is the correct position?

Case 3

Set-off by the credit balance of the legal representative

Miss Rahima has a current Account with the bank which has remained overdrawn for a long time despite many
reminders. Meanwhile, Miss x obtains legal representation to the estate of her deceased uncle, Mr. Amzad, who
too had a current account with the same branch of the bank. By virtue of such legal representation, Miss Rahima
goes to the bank for withdrawing the credit balance in the account of Mr. Amzad, deceased, but the manager
wants to set it off against the overdraft in the account of Miss Rahima.
What is the legal position?
Legally, the bank cannot exercise its right of set-off because the debt is not in the same relationship and right.

Case 4

Set-off in a joint account

There is a credit balance in the account of Mr. Rashid and the banker wishes to set it off against an overdraft in
the joint names of Mr. Rashid and Mr. Rahman.
Can it do so?