Recent Suicide Case: What Is More Important – Human Life or Recovery of Debt?

“Examining the critical question: Human life or debt recovery? The recent alleged suicide case of Nitin Desai highlights the emotional toll of recovery actions by financial institutions. The article delves into the legal frameworks governing debt recovery, the impact on mental health, and the need for a humane approach. It raises questions about the balance between legal procedures and the well-being of individuals. As the nation strives for economic growth, a call for empathy and ethical considerations in debt recovery practices emerges.”

The alleged suicidal death of Nitin Desai on the 2^nd of August 2023 with a death wish of allegedly naming certain people responsible for the abetment of his suicide on account of recovery of his huge debt sanctioned by Edelweiss Financial Services, one of the big financial conglomerates in India to Art World Private Limited of late Nitin Desai. Police has already registered FIR against some officials of the Financial Company. The recovery actions were undertaken by the financial company against the defaulted borrower by invoking provisions under IBC through NCLT, Mumbai.

Justifying their action of undertaking recovery proceedings under IBC, ECL Finance and Edelweiss Asset Reconstruction Company (EARC), clarified, “We would like to state that ECLFL and EARC have acted fully in accordance with the letter and spirit of law and regulatory framework established by RBI which prescribes that, pursuing recoveries on NPA accounts is not just a right of creditor but also an obligation.” The clarification further stated that the company also complied with all RBI guidelines and statutory obligations also were put in place while dealing with case. The general attitude prevailing among the banks and financial institutions is the same when it comes to the question of recovery of debts.

The basic question is whether the laws are made for citizens or the citizens are made for the laws.

The purpose of law is to protect the rights, interest, of the law abiding citizens of honesty and integrity and to shield them from the misuse and abuse of fundamental rights, constitutional rights, human rights, consumer rights, principles of natural justice  and shall in addition to and not in derogation of any other law for the time being in force. As far as debt recovery laws of banks and financial institutions are concerned namely Recovery of Debts and Bankruptcy Act (RDB Act, 1993), The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT), Insolvency and Bankruptcy Code, 2016 and The Arbitration and Conciliation Act, 1996, the laws will have to ensure strict compliance of RBI guidelines, non-contravention and abetting contravention of the provisions of the SARFAESI Act and RDB Act and also safe guard the rights of the aggrieved persons under Arbitration and Conciliation Act.

The basic tenet of law is ‘Let 100 culprits escape but not one innocent be punished’. That raises a justifiable question, “Are the Article 14 (equality before law), 21 (Right to live), 300A (owning property), not important compared to the many wrong doings and unbecoming acts of the bank and financial institutions than human life?

But in reality, “Law is an imperfect profession in which success can rarely be achieved without some sacrifice of principle. Thus all practicing lawyers — and most others in the profession — will necessarily be imperfect, especially in the eyes of young idealists. There is no perfect justice, just as there is no absolute in ethics. But there is perfect injustice, and we know it when we see it. (ALAN DERSHOWITZ- an American lawyer and former law professor known for his work in US constitutional law).

DRT and DRAT and all other Tribunals shall be guided by the principles of natural Justice. Justice and Conscience are two sides of the same coin. Justice cannot be delivered without the Conscience because human behaviour is directly related to his emotional and righteous feeing of right and wrong according to his conscience thinking and the state of the quality of awareness within the human being that drives him to his actions. The dictionary meaning of conscience is “the part of you that judges how moral your actions are and makes you feel guilty about bad things that you have done or things you feel responsible for.” The legal meaning of conscience is “conscience: an internal sense of right and wrong. To respect differences between persons the law sometimes permits a conscience clause. Freedom of conscience is a human right.” (Collins Dictionary of Law © W.J. Stewart, 2006).

WHAT DRIVES THE CONSCIONCE OF THE BANKS, FINANCIAL INSTITUTION AND JUDICIARY?  RECOVERY OF DEBTS OR SETTLEMENT OF DEBT? BUT WHAT DRT MEANS? DEBTS RECOVERY TRIBUNAL AND THE NOMENCLATURE ITSELF BRINGS IN AN IMPLICIT BIAS.

WHAT IBC DENOTES? INSOLVENCY AND BANKCRUPTCY CODE WHICH IS ALSO ONLY A MEANS TO RECOVER DEBT AND THE MANNER IT IS BEING IMPLEMENTED IS WITHOUT ANY HUMAN CONSIDARATION OVERLOOKING THE TRUTH THAT IT TAKES TIME TO BUILD BUT DESTROYED IN NO TIME WITHOUT COMPASSION OR EMPATHY UNDER DEBTS RECOVERY ACTS.

Reserve Bank of India (RBI), the Regulated Authority of all Regulated Entities in in their notification on “PREVENTION OF SLIPPAGE OF NPA ACCOUNTS” univocally states, “Generally, NPA is more likely to be resolved in terms of recovery if the company is in operation.” For this to be effective there must be a system of identifying the weaknesses in the accounts at an early stage. Banks may put in place an “Early Alert” system that captures early warning signals in respect of accounts showing first signs of weaknesses. This system may be an integral part of the risk management process of the bank.

Have the DRT, DRAT and other judicial courts ever considered the most important above mentioned dictum “the company is in operation”?

 The Author being a NPA Resolution Consultant, has not seen any court giving any weightage or credit to this aspect of RBI observation and if it had been taken as an evidence in the legal proceedings of recovery of debts of banks and financial institutions, many honest entrepreneurs with integrity could have been saved from suicidal death and their employees could have been protected from losing their livelihood.

If only our law makers had understood that “Law without justice is a wound without a cure.” (WILLIAM SCOTT DOWNE), the approach towards recovery would have been more humane.  The general belief among the public is that “The law was made for one thing alone, for the exploitation of those who don’t understand it.” (BERTOLT BRECHT- Theatre Practitioner, Play write and Author)

Once the account is classified as NPA, the beginning of death of that entity starts because any remittance coming to the entity is adjusted towards the loan account leaving the entity without any working capital which leads to completely stop cash flow. Can the suffering entity which has been deprived of their cash flow, service the debt and interest thereon?  If an analysis of the assessment and appraisal of sanction is made and how the credit monitoring is undertaken, it will definitely reveal without any ambiguity that most of the NPA on accounts are born sick, acquire sickness and sickness thrusted upon them. Whether cash flow is available or not, interest goes on accruing with penal interest adding to it of which neither the court nor the lender bothers about its severe and adverse impact on the borrower. In this connection a reference to RBI circular DBS. FrMC .No. BC. 1 /23.04.01D/2004-05 dated August 7, 2004 on Deficiencies found in sanctioning of loans and monitoring of borrowal accounts by banks / Financial Institutions may be referred. In spite of bringing to notice of the court and the banks and financial institutions during the course of legal proceedings for recovery of dues, the banks and F I and the Tribunals and Courts simply overlook this important aspect and consider recovery of debts as more important than human sufferings and survival and allow the bank officials and the Authorised Officer of the bank to go with impunity. Is that justice?

The Author does not challenge the rights of the banks and financial institutes to recover the outstanding dues of stressed borrowers considering the importance of banks’ health and nation’s economy. What he propagates that every right is derived out of duty and responsibility to be performed first and the duties and responsibilities are as enumerated under RBI complying circulars which includes actions to be undertaken to prevent slippage of NPA accounts and other statutory compliance. If not complied, penalties can be imposed on erring banks and financial institutions as per Banking Regulation Act.

The problem with banks and financial institutions is that they fail to identity the borrower whether he is a wilful defaulter, fraudster, cheater, money launderer etc. In the recent judgment of the Supreme Court dated 27.03.2023 it is observed, “It is thus amply clear that one is entitled to have and preserve one’s reputation and one also has a right to protect it. In case any authority in discharge of its duties fastened upon it under the law, travels into the realm of personal reputation adversely affecting him, it must provide a chance to him to have his say in the matter. In such circumstances, right of an individual to have the safeguard of the principles of natural justice before being adversely commented upon is statutorily recognised and violation of the same will have to bear the scrutiny of judicial review.” This case was with regard to give a fair chance of being heard even for a borrower who has been declared as a fraudulent person.

As per the aforesaid Supreme Court judgment it has become incumbent on the part of banks and regulated financial institutions to ensure that no borrower be declared as willful defaulter or fraudulent person unless that person is given an opportunity to be heard and explain his position before condemning as such. But once they proved to be as such, the severest of punishment be imposed on him.

The Author happened to scan through the statistics furnished by National Crime Records Bureau (NCRB) in their web site regarding the suicides committed by business people which prompted me to undertake an insight into the debt recovery approach and methods adopted by the banks and financial institutions. The NCRB reported that 11716 Indian businesspeople died by suicide in 2020, more than farm suicides cases (10677). A perusal of National Crime Records Bureau (NCRB) will show the following statistics.

The above figures are based on the reported cases and many cases are wrongly reported under other causes. Considering the magnitude of the suicidal deaths taking place in the business sector especially when emphasis is being given in the sphere of Aatma Nirbhar Bharat Abhiyan, it is high time that a dispassionate, unprejudiced and unbiased review of the reasons for increasing incidents of such cases has to be undertaken to arrest the trend and induce confidence among the entrepreneurs particularly the younger generation.

The prime reasons for such suicides among business people are on account of financial stress factors leading to depression and other psychological afflictions coming out of non-fulfilment of their financial commitments to the bank and financial institution and other creditors. Therefore it is imperative that a study has to be initiated to understand how bank finance leads to the borrowers’ suicides. It is stated “Mental health and financial health are closely linked. Being in a difficult financial position can have a negative impact on your mental health, and mental health concerns can be exacerbated by poor financial wellbeing.”

Motives for suicides may be many. A truism in suicide literature is that “not all persons who commit suicide want to die and not all persons who want to die commit suicide”. “The intentionality and lethality of suicide are important dimensions which describe the motive behind the act.” Many studies have been undertaken on the connectedness between debt and physical and mental well- being. It is found that unmanageable debts and its constant presence and pressure can lead to severe stress and depression which are linked to increased suicide rates. It also affects the interpersonal relationship instability affecting the sense of physical well-being and emotional security. An unmanageable debts scenario would have a severe adverse impact on mental health causing anxiety, mental stress and depression. It affects the mental acuity and sensitivity and all aspects of one’s life, personal, professional and social, creating a vicious life cycle.

“Depression affects job performance and productivity, engagement with one’s work, communication with co-workers, physical capability and daily functioning. Once a person is incapable of focusing or completing their work, they’re unable to bring in income, thus fuelling the cycle of debt and mental health.” The attitude and the ruthless implementation of provisions of recovery Acts to recover debts by banks and financial institutions create such devastating effect on the psychic disposition of the borrowers certainly affect the metal acuity, financial security and physical well-being.

What is the solution to arrest the trend of entrepreneurs’ suicides?  There is no problem that defies any solution but the attitude and communication gaps combined with lack of effective and robust credit monitoring of the advances and loan portfolios of the banks and financial institutions towards the loan recovery come as an impediment to find solutions. The moment the loan shows the first sign of sickness, the bank should undertake immediate action to find out the true reason for sickness by way of an investigative audit including forensic audit. Based on the result of the investigative audit report, remedial measures are to be put in place to regularise the account.

Any remedial measures undertaken and to be undertaken by government, RBI and implemented by the banks and financial institutions, if it is to be effective, should have been made based on the realities of the business and market assuring adequate cash flow to meet the financial commitments and market demands. If it is not so, then any remedial measures taken will become redundant. It is to be ensured that banks and financial institutions particularly NBFCs and ARCs should not be allowed to work like a real estate agent. This is the reality which is being faced today.

“Law … is the clear, translucent stream of justice, flowing freely and smoothly between the banks of wisdom and truth, purified by mercy and equity. As found upon our statue books, this highway of justice, like some of our rivers, is interrupted in its free course, by individual dams, sand bars, snags, and flood wood; often changing the channel, and causing many a shipwreck. (LEVI CARROLL JUDSON)

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Disclaimer: This article provides an examination of the debt recovery landscape in India, referencing specific legal, financial, and social contexts. It delves into the perceived and actual implications of debt recovery actions, and the ramifications on individuals and businesses. While it cites the unfortunate alleged suicidal death of Nitin Desai and mentions potential links between financial pressures and mental health, this article should not be considered as a definitive cause-and-effect relationship between financial institutions’ recovery actions and individual or business outcomes. The author has employed sources, references, and opinions to present a perspective on the matter. Readers are advised to approach the topic with an open mind and consider the broader context in which these issues operate. Every individual and business circumstance is unique, and this article aims to highlight systemic concerns rather than assign blame to specific entities or processes.