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There was reportedly no notice or formal summons in a decade-old soured-loan case which has shaken the banking sector, stoking concerns the incident could delay decision making in multi-billion-dollar recovery initiatives of several lenders.

Former SBI chairman Rajnish Kumar termed his predecessor’s arrest as extremely unfortunate and a case of high handedness. “Prima facie, it seems to be a case of misrepresentation of facts and singling out of an individual, who held a high position, to seek publicity,” Kumar told ET. “In the process, the dignity of an individual has not been given any consideration. It needs to be looked into whether due process of law has been followed.”

Account Acquired by an NBFC in 2017
Chaudhuri was arrested from his Delhi residence by the Rajasthan police and taken to Jaisalmer on Monday. His subsequent bail application was rejected by the local magistrate. The case refers to the ‘Garh Rajwada’ hotel project in Jaisalmer, financed by SBI in 2007.

• Chaudhuri was arrested from his Delhi residence by Rajasthan police, taken to Jaisalmer on Monday
• Local magistrate rejected his bail plea
• Case refers to a Jaisalmer hotel project, financed by SBI in 2007 Account became an NPA in 2010
• Chaudhuri retired in 2013 NPA was sold to an ARC in 2014
• Bank not summoned or asked for its views in case

Since the project was not completed for three years and a key promoter passed away in April 2010, the account slipped into the non-performing asset (NPA) category in June 2010.

As the country’s biggest mass lender didn’t succeed in reviving the project, SBI sold the loans to the Alchemist Asset Reconstruction Co (ARC) in March 2014.

To be sure, it is unclear whether Chadhuri was arrested because of his role as SBI chairman or because he was later chairman of Alchemist ARC, which bought the assets from the bank. Police authorities in Rajasthan couldn’t immediately be reached for their comments.

Ironically, bankers said Chaudhuri retired from the bank six months before the sale of loans, in September 2013.

In a statement, SBI said the sale to Alchemist ARC was done through a laid-down process. Further, the account was taken to the bankruptcy court and was acquired by an NBFC in December 2017.

‘No Legal Basis’

The arrest, without any due notice or summons neither to the bank nor Chaudhuri, has not gone down well with current and former SBI executives. Former SBI deputy managing director Sunil Srivastava took to Twitter to express his displeasure. “Frankly, without notice and without summons, how can police from another state arrest someone in Delhi? Where is the due process of law? Absolutely pathetic. Is the system being gamed again by defaulters despite all efforts by Modi govt; time for overhaul of judicial processes to improve transparency and introduce accountability,” Srivastava wrote on the social media platform.

Interestingly, Alchemist ARC promoter Alok Dhir was not arrested and his mobile phone was switched off when ET tried to reach him. “Whatever it is, it does not have a logical or legal basis,” the chief of a large public sector bank said, on the condition of anonymity. “There have been numerous court orders, including from the Supreme Court, that directors are not liable for the faults or crimes of a company management. Some lower level judicial and police officers who have no clue of how banking works take these high-handed decisions to please higher-ups. This must stop.”

‘SBI not Party to Case’

SBI said despite the case involving its loan account, it was neither summoned nor asked for its side of the story.

“It transpires now that the borrower had initially filed an FIR with the state police against the sale of the asset to the ARC. Aggrieved against the negative closure report filed by police authorities, the borrower had filed a ‘protest petition’ before the CJM court,” SBI said in a statement. “Incidentally, SBI was not made a party to this case. All the directors of that ARC, including Mr Chaudhuri who joined their board in Oct 2014, have been named in the said case. Incidentally, Mr Chaudhuri retired from the bank’s service in Sep 2013.”

The bank said it has now accessed copies of the proceedings that show the court was not briefed correctly on the sequence of events.

Bank Offers Cooperation
“In as much as SBI was not a party to this case, there was no occasion for the views of SBI being heard as part of these proceedings,” the bank said. “SBI would like to reiterate that all due processes were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any, that may be called for from their side.”

Bankers said lessons have not been learnt despite recent judicial and police overreaches. They were referring to the dramatic June 2018 arrest of the Bank of Maharashtra CEO Ravindra Prabhakar Marathe, and executive director Rajendra Kumar Gupta. The police subsequently filed a closure report due to lack of evidence and Marathe and Gupta were reinstated.

“The point is that the police were not punished. There is no punishment for wrongful cases and judgements that can destroy careers. Law enforcement agencies are not acting with responsibility and this will have economic repercussions,” said the bank CEO cited above.