The Bhutanese Leading the way.
In what will come as a major relief to banks and bank employees, the High Court ruled banks and their employees need not pay the interest and penalty of Phajo Nidup amounting to Nu. 129.154 mn imposed on various banks by the Special Bench on May 2024.
Initially, the time bound Special Bench ordered Phajo Nidup to bear the liability for repaying the principal outstanding amounts of the loans in question in majority of the loan cases.
However, the judgment also addressed the conduct of certain bank officials who had not adhered to the Bank’s Credit Manual during the loan procedure and were thus, ordered to bear the liability for the accrued interest and penalties associated with the loans of Nu 129.154 mn.
The special bench for the purpose of recovery as well as to fix accountability, the interest and late fees were divided among bank employees who were involved in sanctioning the loan against the set procedure of the institution including banks as an institution for failing to oversee such incidents and few employees of other relevant agencies.
The high court reviewed the cases and ruled that loan beneficiaries are liable not only for the principal loan amount, but the interest accrued too in particular cases, based on principles of privity of contract, doctrine of in equal fault, and section 17(2) of MIPA.
Additionally, the defendant Phajo Nidup submitted an undertaking to repay the outstanding loans including interest and penalties by himself. Thus, banks and dealing officers were not held liable for accrued interest and penalties.
Nevertheless, banks were ordered to take administrative action against officers for not adhering to the Credit Manuals.
The high court has fully concluded its review of 40 civil cases related to Phajo Nidup, which were appeals against Time Bound Bench judgments, primarily involving Financial Institutions.
12 cases were fully affirmed, 27 cases partially reversed and 1 case withdrawn by the appealing party.
Of the partially reversed judgments 4 cases involved sale and purchase of property and 23 cases involved Financial Institution loans.
The partially reversed cases included the above cases against the bank employees’ liability.
Initially, the special bench issued a directive concerning bank auctions. This ruling instructed banks to conduct auctions based on the present market value of assets at the time of enforcement
The high court reviewed the cases and directed banks in its judgments to conduct auctions in accordance with RMA guidelines, departing from the time bound bench’s judgment to base auctions on present market value.
Initially, in one of the cases, the time bound bench sentenced a defendant (Nado) to two months of compoundable imprisonment for having fraudulently procured a false work order from the then Ministry of Works and human Settlement to secure the loan.
The high court reviewed the case and dismissed a two-month sentence imposed by the special bench, upholding the principle of double jeopardy in a case where the defendant had already faced criminal charges for the same offense.
Following the high court’s rulings on 40 civil cases related to Phajo Nidup, only 7 judgments have been appealed to the Supreme Court. The high court is still yet to rule on the criminal cases related to Phajo Nidup.
The special bench had earlier concluded hearings in the civil and commercial cases involving Phajo Nidup on 20 May 2024, Monday, and pronounced a total of 87 judgments of which 40 cases were later appealed to the High Court, mainly by affected bank employees.
The civil cases involve credit and liabilities owed by Phajo Nidup to multiple parties whereas the commercial cases involve his loan debts to various financial institutions.
As per the judgments rendered by the special bench since its establishment, Phajo Nidup owes a sum of Nu.342.186 million (mn) to different private individuals excluding the liabilities of previous judgments pending before the Bench for enforcement.
Likewise, different private individuals owe about a sum of Nu.37.234 mn to Phajo Nidup.
Phajo was liable to pay the principal and interest payment to Nu. 657.759 to various banks. This will now go up with the high court judgment pushing the Nu 129.154 mn fines and penalties to him from the banks and their employees.
