Lenders seek immunity for board members, suggest NaBFID-like shield against arrests

Banks have asked the government for protection against the arbitrary arrest of board members for commercial decisions such as the granting of loans. They want similar immunity for executives deputed to boards of borrowing firms. The exemption could be on the lines of that available to the top brass of the National Bank for Financing Infrastructure and Development (NaBFID), they suggested.

The issue was discussed by banks internally at a meeting last week and a representation was subsequently made to the government, said people with knowledge of the matter.

Bankers have been lobbying for changes in existing provisions toward this end, arguing that it will help hasten decision-making, in turn bolstering growth and economic development. Banks repeatedly raised the issue after the 2021 arrest of former State Bank of India chairman Pratip Chaudhuri in an alleged loan scam case.

Independent directors too
“We have also sought immunity for bank officials who are appointed to the boards of other borrower companies as independent directors,” a senior bank executive said. “Similar provisions are applicable for NaBFID.”

Under Section 36 of the NaBFID Act, those appointed by lenders to the boards of borrowing entities are deemed to be independent directors under the Companies Act, 2013. The immunities available to independent directors are applicable to them.

“Banks should also be given this protection, which is for commercial decisions taken in good faith,” said another bank official, adding they expect the government to make suitable changes to the Banking Regulations Act & Companies Act.

Prior approval
They also cited Section 35 of the NaBFID Act, 2021, which requires any agency, including the CBI, to get permission from the central government before launching investigation in cases where the alleged offence was committed by the chairperson or other directors.

Bankers have sought similar treatment for them under the Prevention of Corruption Act and the Code of Criminal Procedure (CrPC).

They want the government to provide necessary clarity under Section 17A of the Prevention of Corruption Act (PCA), giving them immunity from arbitrary action by any law enforcement agency. Prior approval would then be necessary for conducting an “enquiry, inquiry or investigation” into any offence allegedly committed by a public servant. This is “relatable to any recommendation made, or decision taken, by such a public servant in the discharge of his official function or duties.”

After the Chaudhuri arrest, the Indian Banks’ Association had asked the government to treat bank executives on a par with government officials, and provide them protection under Section 197 of CrPC. This provides that no court should take cognisance of criminal charges against public servants unless prior sanction to prosecute them is received from a competent authority.

The Central Vigilance Commission in 2020 set up the Advisory Board on Banks and Financial Frauds and made it mandatory for all large suspected bank fraud cases to be vetted by it before agencies such as the CBI initiate any action.

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