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RSTV – THE BIG PICTURE ANALYSIS 

UAE BANKS: INDIAN DEFAULTERS AND RECOVERY

 

The Topic covers GS paper 2[Government policies and interventions for development in various sectors and issues arising out of their design and implementation.]

Image result for UAE Banks Indian Defaulters upsc

Context


  • At least 9 banks from the UAE are in the process of initiating legal action against Indian defaulters to recover around Rs 50,000 crore, after New Delhi made the rulings of Emirati courts in civil cases enforceable here. 

  • While most of the cases involve corporate loans taken by Dubai or Abu Dhabi-based subsidiaries of Indian companies, action is also being planned against individuals, according to a report in the Economic Times. 


What is the Background?


  • The banks include UAE-based Emirates NBD, Mashreq Bank and Abu Dhabi Commercial Bank. 

  • A few other lenders such as Doha Bank, National Bank of Oman and National Bank of Bahrain, which have exposure to Indian entities or citizens through their branches in Dubai or Abu Dhabi, also have either already moved courts in the UAE or are in the process of doing so in the coming weeks, the report added. 

  • The Indian government on January 17 issued a notification allowing the decrees of certain UAE courts in civil cases to be enforceable in India. 

  • This means a UAE bank, if it has a court order in its favour against a defaulter who has fled to India or no more has operations in the Emirates, can seek to enforce it here like any local lender to recover the money.


What is the role of UAE as ‘Reciprocating Territory’?

 

  • The UAE has been declared a reciprocating territory undersection 44A of Civil Procedure Code.

  • It is said to be the only remaining part of a 1999 agreement between the UAE and India related to cooperation in civil and commercial matters.

  • Apart from UAE, the other countries declared to be “reciprocating territories” are: United Kingdom, Singapore, Bangladesh, Malaysia, Trinidad & Tobago, New Zealand, the Cook Islands (including Niue) and the Trust Territories of Western Samoa, Hong Kong, Papua New Guinea, Fiji, Aden.

 

What do we understand by ‘reciprocating territory’ and what are superior courts?

 

  • The Central Government may, by notification in the Official Gazette, can declare any country or territory outside India to be a reciprocating territory.

  • Essentially, orders (decree) passed by certain designated courts from a ‘reciprocating territory’ can be implemented in India, by filing a copy of the decree concerned in a District Court here.

  • The provision is applicable money decrees – for payment of money, not being sums payable “in respect of taxes or other charges of a like nature or in respect of a fine or other penalty”.

  • However, this does not include an arbitration award, even if such an award is enforceable as a decree or judgment.

  • The courts so designated under the notifications are called ‘superior Courts’.


Why is it significant?


  • Earlier UAE-based banks had no recourse to enforce judgements directly to recover their corporate or retail loans given to Indians in the UAE, but now they can take action in India.

  • Most of the cases involve corporate loans taken by Dubai or Abu Dhabi-based subsidiaries of Indian companies and also individuals.

  • The new government notification allowed the decrees of certain UAE courts in civil cases to be enforceable in India.

  • This means a UAE bank, if it has a court order in its favour against a defaulter who has fled to India or no more has operations in the Emirates, can seek to enforce it here like any local lender to recover the money.


Conclusion


  • Now UAE banks may also explore initiating proceedings under the IBC (India’s Insolvency and Bankruptcy Code) or the banks could also approach the NCLT or even invoke personal guarantees.

  • The decision is believed to help bring down the time required for executing decrees between the two countries.

  • Indian expatriates in the UAE would no longer be able to seek safe haven in their home country if they are convicted in a civil case in the UAE.