RECOVERY
OF LOANS THROUGH LEGAL ACTION
Circular
No.167577/71-M.P., Dated:
4.12.71
Sub:- Cooperative Central Banks
- Collection of dues and Overdues from the borrowers of the Agricultural Credit
Co-operatives - Instructions - Issued .
One
shocking instance has come to the notice of the Registrar that an old woman of
60 years, a member of Co-operative Society, was the victim of the vagaries of
an office-bearer of a Co-operative Credit Society. Her properties were attached
though she did not receive the loan amount because the Secretary of society
misappropriated the amount by obtaining her signature on the loan bond on some pretext.
The
action taken against the old, helpless and illiterate woman is legally correct
as per the records of the society but normally it is unfortunate. The
supervisory machinery is guilty of the offence of no supervision in this case.
Should these legally valid but morally unjust acts go on? It is in this context
that the Registrar discussed about the action to be taken to save the innocent
members from the calculated mischief.
During
the visit of the Registrar of Co-operative Societies to a Co-operative Central
Bank, he noticed another case where legal action was initiated automatically
soon after the lapse of six months from the due date. He examined the action
taken by the Panchayatdars of the Society and the staff of the bank to persuade
the borrower to repay the loans before legal action was initiated. There was no
sufficient effort on the part of the bank staff to contact the borrowers to
effect collection before the due date. This was the position in a society in
the area of the Co-operative Central Bank. The Cooperative Central Bank
explained that the Registrar issued instructions to take legal action soon
after the completion of six months from due date. The spirit of the circular
was not properly understood. Therefore, the following instructions are issued
for guidance and compliance.
Disbursement
of the Loans:
Disbursement
of loans is the key for the recovery of loans. Any defect or irregularity in
the disbursement of a loan will contribute for its non-recovery. Therefore,
proper disbursement of loan is to be ensured. Machinery to supervise and ensure
proper disbursement and the machinery to test check the utilisation of the loan
should be evolved, because it is at this stage the factors for the non-recovery
of loans germinate.
The
Supervisor or the Branch Manager, as the case may be should on receipt of the
loan disbursement intimation visit the society and verify each loan disbursed,
contact the borrowers and submit disbursement statement along with his
certificate within 15 days of the disbursement of the loan in the form already
prescribed.
The
Extension officers (Cooperation) concerned on receipt of disbursement
intimation from the bank or the branches as the case may be, will visit the
society at once and verify atleast 25% of the loanees. He should cover the
remaining loans during his subsequent visits and complete the verification of
all loans before the harvesting season commences. The Divisional Co-operative
Officers in the districts are requested to issue suitable instruction in this
regard.
In
the course of verification of loans, certain precautions are to be taken to
locate the existence of the benami or fictitious loans overlooked at the time
of disbursement of cases where loans were repaid but they were not recorded in
the accounts of the society.
Verification
of Loans:
Verification
of the loans is the prevention of abuses. The supervisors, the Branch Managers
or the Bank officers should gather as many members as possible at the seat of
the society during their visits and ascertain their indebtedness. They should
read out the list of the borrowers and the amount of the loan disbursed to
them. The oral enquiries and publication of names of the borrowers are
necessary to locate fictitious loans.
Thereafter,
the officer should obtain the loan verification or confirmation letters from
the borrowers and the society. Care should be taken to see that more number of
defaulters are verified, and by the end of the year, it should be ensured that
all the outstanding loans are verified by the bank staff.
There
should be record in the society to know the names of the borrowers whose loans
are verified and yet to be verified. Therefore, a register for the loan
verification in the form already prescribed will be maintained in the society,
wherein the visiting officers will record the particulars of loans verified during
their visits. The fact of verification of loans in each case should be informed
to the bank in the form already prescribed. Where the borrowers could not be
contacted after repeated visits, the supervisor concerned will issue notices to
the members in the form already prescribed under copy to the bank.
Thus,
adequate care has to be taken to ensure that the concerned member received the
full amount of loan sanctioned to him and watch the due date.
Collection
of Loans:
a)
Persuation:-
Every
loan will have a due date. The Cooperative Central Bank should issue a notice
to the society one month in advance of due date requesting for the repayment of
the loan on or before the due date. Soon after the receipt of the notice the
society should convene a meeting of the borrowers concerned and request them to
arrange for the repayment of the loans in time. It is the duty of the
supervisor to get the meeting convened. He should attend the meeting as far as
possible whether he attends the meeting or not, he should contact each borrower
again atleast 15 days in advance of due date and commit them for repayment on a
particular date.
Meanwhile
the local Director should arrange a meeting of the representatives of the
societies in the area in Central Places and exhort them to collect the loans on
or before the due dates. Simultaneously the officers of the Cooperative Central
Banks should visit certain selected troublesome societies, 15 days before due
date for the collection of loans.
Thus,
the borrowers are to be reminded about the due date so that necessary
arrangements may be made by them to repay the loans. As the pressure will be on
all the borrowers in a society and that too by many, on several times, the
human nature as it is the borrowers naturally will respond to the request many
cases and repay the loans. Results were achieved in the past by the
non-official co-operators by adopting the above procedure.
The
Registrar had discussions with several non-official co-operators on this aspect
and the general idea is that wholesale legal action will scare away the members
and that definite progress in the collection of loans can be achieved by moral
persuasion and by the repeated contacts of the borrowers by the Directors and
the staff of the bank.
b) Legal
Action:
The
borrowers arc given many chances to pay their loans as explained above. Even
after such a drive, some of the borrowers fail to repay their loans for reasons
beyond their control while some others purposely and intentionally, though
capable. So, the supervisors of the area should visit the societies within one
month after the due date and contact all the defaulters to collect the overdues
with the assistance of the panchayatdars of the societies concerned. During the
second month or within three months after the due date, an officer of the
Cooperative Central Bank and the local directo1'6hould visit the societies
where the loans are overdue and exert pressure for the collection of overdues.
After the expiry of three months, the president and the local directors
concerned should arrange meetings of the representatives of the societies in a
Central place and arrange for the collection of overdues. It is preferable to
convene the meetings of the Board of Directors of the Cooperative Central Bank
in the areas where the overdues are mounting up and where the defaulters are
troublesome, so that the conditions leading to overdues can be examined by the
Directors on the spot by visiting certain societies, if necessary. This
approach will have a salutary effect on the defaulters in many cases.' The
Directors can contact the local people both members and non-members and explain
the position of the Cooperative Central Bank and how the non-recovery of
overdues will effect the Cooperative Central Bank as a whole; how the credit
that can be secured will be curtailed; and thereby the whole area will be
deprived of the benefit of getting more credit.
After
exhausting the above action, the Societies or the appropriate authority should
initiate legal action in select bad cases in proper time; but not
indiscriminately. It should be clearly shown that several attempts were made to
collect the amount and that pursuation having failed, legal action has become necessary.
The legal action initiated should be publicised in the area and the action
taken should be effective so that the other defaulters may realise their
responsibility and repay their loans.
It
shall be clearly understood that the proper processing of loan applications and
the prompt collection of the dues is the primary responsibility of the bank
staff. Supervisors in whose areas large amounts remain overdue have obviously
not done their basic duty. Disciplinary action should therefore be taken
against those with large overdues in their areas.
The
Apex Co-operative Bank may depute its officers to assess whether proper
persuasive action has been taken by the Cooperative Central Bank and also to
give guidance to them as to the future course of action.
The
Departmental Officers also will be issued instructions separately to assist the
bank staff in the collection of dues and overdues. Their efforts are
complementary.
Thus,
all borrowers can be tackled by persuation to collect dues or overdues.
It
is hoped that all the Cooperative Central Banks will chalk out a programme to
implement the above suggestions by issuing clear instructions to all the
concerned.
