The Bank Company (Amendment) Act, 2023 has received the approval of the Bangladesh Cabinet which has a focus to gain the enhancement of financial governance of Bangladesh. One of the special features of this Act is defining the ‘Wilful Defaulter’ and the consequences of making such a default. In simple words, a wilful defaulter refers to the person who does not pay back the loan money to the lender even though he is able.
According to the definition laid down by the Bank Company (Amendment) Act 2023, a wilful defaulter is a person or an institution which fails to repay the loan to the lender despite having the financial capacity. The definition also states that if anyone takes financial benefits from a bank or financial institution providing false information in the name of one or other family members, it will also be considered as wilful default. Furthermore, the Act widens the ambit of a wilful defaulter by extending the definition to a person who uses the borrowed money other than the approved purpose or if a person transfers any asset kept as mortgaged in banks against loans without prior approval from the bank concerned.
Many people or institutions despite having the means, do not pay back the loans availed from banks with the full intention of depriving the banks of the loan taken. In order to curb such intentional default from wilful and habitual defaulters, the Act has devised the following measures to be taken against wilful defaulters:
- Banks and non-banking financial institutions must send the list of wilful loan defaulters to Bangladesh Bank.
- Once a bank reports someone as wilful defaulter, the bank must notify the borrower within 7 working days and the borrower will then be required to appeal to Bangladesh Bank within 30 days. Bangladesh Bank will take the final decision in this regard.
- If and when a borrower is categorized as wilful defaulter (if borrower does not appeal or Bangladesh Bank declines the appeal), the bank will ask the borrower to repay the entire loan within two months, failure to which the bank can file a lawsuit in Criminal Court against that particular wilful defaulter or the bank will arrange an auction to sell off the mortgaged assets as per the Money Loan Court Act 2003.
- Bangladesh Bank shall issue directives from time to time regarding detection and finalization of wilful defaulters.
- Bangladesh Bank can impose ban on overseas travel, issuance of trade license, company registration under the Registrar of Joint Stock Companies and Firms (RJSC) and Securities Exchange Commission (SEC) against wilful defaulters.
- A wilful defaulter cannot be eligible to be a Director of a Bank or Financial Institutions until after five years have passed after being excluded from the list of wilful defaulters.
- If any Director of a bank becomes a wilful loan defaulter, Bangladesh Bank can remove him from his post.
- If a bank fails to send the list of loan defaulters to the Central Bank in time, the bank can be fined BDT 50.00 Lac to BDT 1.00 Crore. The bank will have to count fines of an additional BDT 1.00 Lac for each day’s delay.
With loan default plummeting in recent times, the inclusion and recognition of a wilful defaulter and the subsequent measures to be taken to restrain such defaulters in the amended Act will play a vital role in destroying the default culture of loan and bringing the much-anticipated discipline in the financial sector of Bangladesh.
Tasmiah Zaman, Barrister-at-Law is the Co-Lead of Corporate & Employment Law Department at Mahbub & Company (tasmiah.zaman@mahbub-law.com); and MD. Nazrul Islam is an Intern at Mahbub & Company.
