Legal Question in Banking Law in India
We were enjoying Pre-shipment advances (Packing Credit Facility) with one of the nationalized Bank. The Bank had taken the standard insurance policy on the said packing credit facility with Export Credit Guarantee Corporation of India Ltd., (ECGC) to cover their risk for the monies advanced to us. The premium amount of the said insurance policy was charged by the Bank to our company though the aforesaid policy was taken out by the Bank in their name for covering their own risk in case of borrower committing a default in making the payment to the Bank. Upon failing to make the payment to the Bank the Bank declared our Company account as Non Performing Asset (NPA) by issuing 13 (2) notice under the SARFAESI Act. Thereafter, Bank proceeded with further actions as provided under the SARFAESI Act. We have contended that our company has been wrongly classified as NPA. Accordingly our Company has already filed a Securitization Application (SA) with the Debt Recovery Tribunal in Mumbai. The final hearing of the SA is still pending in the DRT. Since the premium on the insurance cover is charged to the borrower and not absolved by the bank as in case of Post Shipment Credit the benefit for the refund of claim amount from ECGC received by the Bank should be passed on to the borrower. Had the Bank not charged the premium to the borrower then in that case the benefit would have undisputedly gone to the Bank. In this matter, neither Reserve Bank of India nor the Ombudsman are able to give their clear cut opinion. In our opinion our contention is only that whether while issuing 13 (2) notice the Bank ought to have at least considered the above position and could have easily reduced and/or adjusted the amount of claim received from ECGC from the borrower�s outstanding dues. If this would have been done by the Bank, for the purpose of calculating, the SARFAESI Act itself would not have been applicable to the borrower as the amount would have been reduced to less than 20% of the principal advances as contemplated under section 31(j) of the SARFAESI Act. We understand that there are no specific Judgements on this point of premium paid to ECGC on pre-shipment advances. Please note, we are emphasizing on Pre-Shipment word. Kindly, let us know if you are aware of any such Judgements on insurance premium being paid by the borrower and, benefit must have gone to the bank without absolving insurance premium paid to ECGC. Your word of advise will be of great help to us.
1 Answer from Attorneys
For a comprehensive scrutiny, we need to have a copies of the documents relating to your loan transactions with the bank so as to see as to weather there was any clause ,specific or implied , in those documents which could have a bearing on the liability for payment of the premium . As per your question, the policy was taken out by the bank in its own name to cover its own risk but the only thing which , as it seems and which according to you is as it is , the mere fact that the premium amount has been recovered by the Bank from your account , the insurance amount should be credited to your account . On a brief analysis of your proposition , it is clear that the contract between the bank and the ECGC is one independent contract to which you are not a party and the right to recover the premium account by the bank from you is another independent contract and to this later contract, the ECGC is not a party. It is a common practice that financial institutions which do lending of money business tried to secure their interest to ensure quick recovery and the cost incurred thereon is usually debited to the account of the borrower . I would like to have a detailed set of your documents executed by you or the Bank concerning your loan transactions in order to enable me to give you a detailed opinion.
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