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MONEY LOAN COURT ACT-2003

Culture of Default And Legal Framework

It is well known that one of the most serious problems of the banks and financial institutions in
Bangladesh pertains to `classified loans' (non-performing loans) caused by 'default in repayment`
by the borrowers, particularly large borrowers. This is not a new problem; rather it has been
created over the y ears because of many reasons. Whatever may be the reasons, the net effect of
the non-performing loans or assets (N.P.A.) on the banks is disastrous. Banks have to keep a
huge provision out of profits against those classified advances. As a result profitability remains
low adversely affecting deposit and lending rates, capital adequacy ratio and management
efficiency of the banks including NCBs and DFIs. Over and above, this problem is also affecting
industrialization of the country since banks suffer from shortage of funds.

With a view to helping the banks and financial institutions in recovery of such classified loans,
the Money Loan Court Act was enacted as early as in 1990 with the objective of speedy disposal
of loan cases. Ina Insolvency Act was also enacted in. 1997 as the last instrument in the hands of
the lending institutions. This Act provided them with the ways to sue the defaulters with a view
to getting them declared as insolvents so that they can not borrow further. In other words, the Act
was conceived of as a threat to the defaulters. Consequent upon these two legislations, thousands
of cases were filed by the lending institutions to recover the stuck -up advance before the
Money Loa the Money Loan Courts set up specially to try loan can cases .Some cases .Some
cases were, filed under the Insolvency Act. But unfortunately progress in recovery through court
cases under the Money Court Act was found to be totally unsatisfactory. ,

It was observed that the cases remained unsettled for years together. Suits continued because of
delay in 'service' return. `Service' (summons) was not returned duly served even within months.
Moreover, there were misc. cases or writs before the high court staying the main case. Since the
stay order was not vacated, the main case remained pending for years. Because of these
problems, banks' cases piled up resulting in gradual increase in the amount of classified
advances. Figures suggest that such loans accounted for about 32 percent of the total loans and
advances made by the banking sector as on end-December, 2001 as against an international
standard of only 2 to 3 percent.

In view of the above circumstances, the Government had to come up with a completely new law,
namely, the Money Loan Court Act-2003 replacing the old Act of 1990. •

Features of The New Act

The new Act, the Money Loan Court Act-2003, addressed quite effectively some of the problems
of the old act, namely, Money Loan Court Act-1990 by incorporating a lot of new provisions to
speed up the judicial_process. It appears from the new Act that it has concentrated on the
following areas: (a) Further codification of the Civil Procedure-1908 i.e. simplification of the
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procedure for filing of suit and awarding judgement within a minimum stipulated time schedule,
(b) Emphasis on documentary evidence and less importance on verbal argument before the court,
(c) Alternative dispute resolution (A.D.R.) through settlement conference or mediation between
the lenders and borrowers, (d) Changes in the Limitation Act-1908, (e) Changes in the doctrines
of finality, (0 Limit on the claim amount i.e. suit value, (g) Restrictions on appeal against the
decree and (h) Discouraging writ before the high court etc.

It is observed that from now on banks will have to go to the court normally after selling the
securities given by the borrowers. The timeframe for awarding judgement by the court has been
reduced to 120 days for preliminary decree under normal circumstances. The preliminary decree
will be final or absolute it the defendant does not approach the judgement awarding court within
30 days of the decree. However, he will have to deposit ten percent of the suit value if he makes
appeal before judge court. Subsequently, higher the court , higher will be the amount to be
deposited if appeal has to be made.

The new Act has also incorporated a welcome measure in the form of 'alternative dispute
resolution' (A.D.R.) whereby the dispute can be resolved mutually through the court in the
presence of the judge, plaintiff and defendants. The lawyers of both sides will be at the assistance
of such settlement. Alternatively, the defendants and plaintiffs may resolve the dispute through
nominated intermediaries accepted by both the parties. Intermediaries may be retired judges or
bankers or any other persons accepted by both the parties.

The Money Loan Court Act-2003 has incorporated two more important clauses. One of them
relates to the fixation of timing of filing cases by the lending institutions. As a result, banks will
not suffer from the law of limitation.

The second one relates to the maximum limit of suit value. Suit value from now on will be
equivalent to the principal and only twice the amount of principal as interest.

Subjects Covered By The Act

The Money Loan Court Act-2003 (Act No. 8 of 2003) assented to by the President on March 10,
2003 has been made effective from May 1, 2003 excepting the Sections-46 and 47. Those two
Sections will be effective from May 1, 2004. The Act contains sixty Sections divided into eight
chapters as shown below:

Chapter-I : Preliminary

Chapter-II : Setting up of Courts

Chapter-III : Power and jurisdiction of Court

Chapter-IV : Filing of Suits, Judicial procedure

Chapter-V : Dispute Resolution by alternative Method

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Chapter-VI : Execution

Chapter-VII : Appeal and Revision

Chapter-VIII : Miscellaneous The important provisions of the Act are discussed below:

Chapter-I

Preliminary

The chapter one contains only three Sections pertaining to the definitions of various important
terms used in the Act. Some of them are given below:

1. Financial institutions : The Act covers the following financial institutions: Bangladesh Bank,
nationalized commercial banks (NCBs), banks established and run on the basis of Bank
Company Act-1991 (private banks), Bangladesh House Building Finance Corporation (H
.B.F.C.), Investment Corporation of Bangladesh (I.C.B.), Bangladesh Shilpa Rin Sangstha
(B.S.R.S.), Bangladesh Shilpa Bank (B.S.B.), Bangladesh Krishi Bank (B.K.B.), Rajshahi Krishi
Unnayan Bank (RA.K.U.B.), Bangladesh Small and Cottage Industries Corporation (B.S.C.I.C.),
financial institutions established under Financial Institutions Act-1993 (leasing investment and
housing companies etc in the private sector), International Finance Corporation ( I. F.C.),
Commonwealth Development Corporation (C.D.C.), Islamic Development Bank (I.D.B.), Asian
Development Bank (A.D.B.), International Bank for Reconstruction and Development ( I .
B.R.D.) and International Development Association (I.D.A.) (Section-2).

2. Loan : Loan will include: loans and advances, cash credit, overdraft, bank credit, bill
purchased and discounted or credit facility and investment of any description by Islami banks,
guarantee, indemnity, letter of credit and any loan given to the employees of the concerned banks
and financial institutions and interest and penal interest thereon (Section-2).

Chapter-II

Setting Up of Courts

The second chapter incorporates the provisions pertaining. to setting up of the courts. It contains
only one Section from which, it appears that the Government, by gazettee notification, will
establish in each district one or more money loan court. However, for convenience, the
Government may set up one such court for two or more districts. In the absence of such co,,
established by the Government, the joint District Judge court will be deemed to be Money Loan
courts for the purposes of the Act.
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The Government, in consultation with the Supreme Court, will appoint judges for the Money
Loan courts from among the Joint District judges. Once appointed, he will only deal with loan
recovery cases (Section-4).

Chapter-Ill

Powers And Jurisdiction of The Court

This chapter also contains only one Section which deals with the powers of the court and its
jurisdiction. Money Loan court will be deemed to be a civil court having all the powers of such
courts provided that those powers are not inconsistent with those of the Money Loan court. All
cases pertaining to loan recovery will be tried by these courts. However, for recovery of loans
upto Tk.50,000 given by B.K.B., RA.K.U.B. and other government owned financial institutions,
certificate cases may also be filed under Public Demands Recovery Act-1913 (act no. III of
1913) instead of filing cases in Money loan courts. The Act will not be applicable in cases of
recovery of loans given to the Government by the international organizations like I.F.C., C.D.C.
and A.D.B. etc. as specified in Section-2 (Section-5).

Chapter-IV

Filing of Suits, Judicial Procedure

This chapter comprising fifteen Sections from 6 to 20 deals with the following major issues: (a)
Judicial procedure, (b) Procedure for serving summons, (c) Contents of the plaint, (d) Reply
procedure of the defendant and time limit, (e) Formulation of the case in point by the court, (0
Adjournment of hearing, (g) Rule for verbal hearing, (h) Time limit for final judgement, (0 Rule
for ex-parte decree and (j) Finality of decree by the court etc. Important ones are discussed
below:

1. Judicial Procedure: The Code of Civil Procedure-1908, if not inconsistent with this Act, will
also be applicable to Money Loan cases. The financial institutions will file the plaint giving
particulars of the case alongwith documentary evidence and an affidavit against the defendant
principal debtor and third party mortgagor or third party guarantor, if any. The affidavit will be
treated as substantive evidence. Similar will be the process of reply by the defendant (Section-6).
The contents of the plaint will include, among others, the following (Section-8).

a. Name, address and workplace of the plaintiff;

b. Name, address, workplace and residence etc of the defendant;

c. All occurrences related to the claims;

d. Place, date and time when the case originated and

e. Relief sought from the court.

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In addition, the plaint will also include a schedule which will contain: amount of loans and
advances given to the defendant, interest charged, penal interest, other charges, payment made
by the defendant prior to the filing of suit and a comparative position between claims by the
plaintiff and payment made by the defendant. A schedule of the securities showing particulars
against which loans were sanctioned will also be included in the plaint.

2. Serving Summons (Samar) : The summons of the Court upon the defendant is required to be
returned served within 15 days. If not, summons is required to be published in the newspapers
within next 15 days for which a sample of advertisement copy will be submitted to the Court by
the plaintiff before hand (Section-7).

3. Written reply by the defendant : The defendant will produce himself before the Court on the
date specified in the summons. He will submit written reply about the claims of the plaintiff
along with any documentary evidence he has in his possession or indicate the source of those
documents if not in his possession (Section-9). No written reply will be acceptable to the Court
later than 40 days of his producing himself before the Court (Section-10). However, subject to
the expenses specified in the Act to be borne by the defendant, the time may be extended by
another 20 days by the Court (Section-10).

4. No case to be filed before sale of securities : Financial institutions are required to file case, if
there is power of attorney to this effect, only after selling goods secured by lien, pledge and
hypothecation or property under mortgage. If case is filed before That they are required to sell it
as soon as Possible under intimation to the Court. If they fail to hand over the possession of the
property to the buyer, on sale, financial institutions will seek help from the Court. The Court, if
satisfied, will hand over the property to the buyer on behalf of the lending institutions (Section-
12).

5. Formulation of the case and settlement : On submission of the written reply by the defendant,
the judge on the basis of plaint and written reply will formulate the case after hearing both sides,
if present. If there is no merit of the case, the judge will immediately award judgement or order
(Section-13).

6. Adjournment of Hearing : Subject to the time limit of settlement of the case given in the Act,
hearing will not be, on application by either party, adjourned more than once provided that the
Court, if satisfied, may adjourn proceedings for more than once (Section-14).

7. Judgment: Judgment will be awarded within 10 days on completion of hearing or within 10

days from the date of hearing verbal argument. The judgement debtor will be directed to pay the
decretal amount within 60 days, if more time is not considered (Section-16).

8. Settlement of the Case : A case under this Act is required to be settled within 30 days, if
exparte or within 90 days from the date of submission of written statement by the judgement
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debtor. The court may, however, extend time limit by another 30 days stating the reasons thereof
(Section-17).

9. Finality of Judgement : No question will be entertained by any Court on the judgement, order
or decree of the Loan Court (Section-20).

Chapter- V

Dispute Resolution By Alternative Methods

Chapter five comprising five Sections (21-25) deals with the alternative methods of settlement of
a case. There are two such methods of which only one is available to the parties concerned. If
any one is tried, the second one can not be availed. The two methods are as follows:

1. Settlement Conference: The judge, with a view to resolving the dispute, can institute a
settlement conference, suspending the proceedings of a case. The conference to be chaired by the
judge and held in camera will be attended by both the parties, their lawyers and representatives
(Section-21).

2. Mediation: The plaintiff and the defendant, on written application to the Court, may resort to
mediation for settlement of a case mutually through appointed mediators who may be bankers
and retired judges (Section-21).

Chapter- VI

Execution

The Chapter on execution comprising fourteen Sections (26-39) deals with the issues like: Court
for execution, time limit for filing execution case, rules for serving notice, objections against
notice, rules regarding auction sale, rules regarding civil imprisonment of debtor, recovery of
money from third party and settlement during execution case etc.

The important ones are given below:

1. Time limit for execution case: Execution case is required to be filed within 180 days of the
judgment or decree. Time limit will be effective, in case of decree to pay in lump sum or in
installments, from the date of expiry of such payment dates (Section-28).

2. Auction Sale: Sale will have to be effected through open auction of 15 days' notice. Intending
bidder will deposit 25 percent of the value in draft or pay order to the court. The entire money
will have to be paid within 10 days of acceptance of bid, failing which the deposited money will
be forfeited (Section-33).
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3. Civil Imprisonment: On written application by the decree holder, the Court may order civil
detention of the judgment debtor for six months with a view to compelling him to pay the
decreetal amount (Section-34).

4. Settlement during execution case: The concerned parties may mutually settle the execution
case with intimation to the Court (Section-3 8).

All told five sections of the Act (40-44) deal with the issues like: appeal, revision, interim order
and jurisdiction of the court etc. Two of them are given below:

1. Filing Appeal: Appeal will have to be filed, on payment 50 percent of decreetal amount,
before the District judge if the decreetal amount is less than Tk.50 lacs and before the high court,
if it is more than Tk.50 lacs. Appeal will be settled within 90 days of filing, extendable by
another 30 days (Section-41).

2. Revision Case: In case of revision suit, the judgment debtor will have to pay 75 percent of the
decretal amount. The case will be settled within 60 days, extendable by another 30 days
(Section-42).

Chapter-VIII

Miscellaneous

This chapter comprising sixteen Sections (45-60) deals with the issues like: special rule and time
limit for filing suit, limit on claim by financial institutions, installment of loan and judicial
proceedings.

Some of them are given below:

1. Filing of Suit : Case under this Act will have to be filed, if not rescheduled, within one year,
in case 10 percent of loan is not repaid in the first year, 15 percent in the second year and 25
percent in the third year (Section-46).

2. Limit of Suit value: Suit value will be the principal amount of loan plus a maximum of 200
percent interest thereon. No suit exceeding this amount will be entertained by the Court (Section-
47).