BR Shetty case: It's time for lawmakers and RBI to revisit lending guidelines, says Karnataka HC

BENGALURU: It is time lawmakers and the Reserve Bank of India revisit the lending guidelines and procedures and take necessary remedial measures to ensure that public money is well secured before disbursement, said the Karnataka High Court.  

Justice PS Dinesh Kumar made this observation while dismissing the petitions filed by NRI businessman Dr Bavaguthu Raghuram Shetty, 77, from Kadri in Mangaluru.

Shetty had challenged the Lookout Circulars (LOCs) issued by the Bank of Baroda and Punjab National Bank on May 8, 2020 and July 18, 2020 respectively. He is liable for repayment of about Rs 2,800 crore lent by public sector banks. This amount is more than one-third of the annual budget of Sikkim.  

Reserving liberty available to Shetty to approach the bank authorities and explain that LOCs have been wrongly issued, the court said the petitioner is not entitled for relief. The court also noted that if public sector banks are permitting such large exposure without adequate securities, it is a matter of great concern and will have a serious impact on the economy of the country.

During the course of hearing, the court called upon the advocates of the banks to explain on what security they permitted such large exposure. The answer given was that the companies to which loans were advanced were listed on the London Stock Exchange and the share value had shown that they had a high net worth. Tangible assets, if any, mortgaged in favour of banks and their valuation is not forthcoming.

On the main arguments advanced on behalf of the petitioner that he is 'only a guarantor', the court said, "In the facts of this case, this admission, without anything more, must entail dismissal of this writ petition limine because a guarantor is equally liable to repay the debt. Further, it is admitted in the pleadings that petitioner is the promoter of the borrower companies".

In the first petition, Shetty questioned the endorsement dated November 14, 2020 issued by the Bureau of Immigration not permitting him to travel to Abu Dhabi. In another petition, he challenged the letter issued by the Bureau of Immigration, Ministry of Home Affairs.

According to the order, Shetty has promoted several companies in pharmaceutical, hospitality, healthcare and foreign exchange business. He stepped down from the management and handed over the companies to the respective officers between 2015 and 2017.

During late 2019 and early 2020, due to various illegal activities and mismanagement in the companies by the persons in charge, the companies were unable to service the loans obtained from various banks which initiated various proceedings against the companies and also against Shetty who is the guarantor.

All transactions are governed by laws in the UAE. As on date, 34 cases are pending in Dubai and Abu Dhabi filed by various banks including Indian banks and four cases in India.