Major alleged bank fraud and default case running into Nu 657 mn by a businessman in Phuentsholing hits several banks and land buyers

The owner of Choden Transport and Bhutan Ply in Phuentsholing, Phajo Nidup, is at the center for what is increasingly looking like a major defrauding of many banks and land buyers in Phuentsholing.

As a result, banks and his alleged private victims have filed or are filing cases in the Phuentsholing Dungkhag and Chukha Dzongkhag courts against the businessman.

Some of the victims have even filed a complaint with the Anti Corruption Commission (ACC).

Nu 657 mn at stake

A source said that the RMA looked into the issue and found around a total of Nu 657 mn in double and even triple mortgage cases in the same assets which are all under the category of Non Performing Loans. The figure, however, could change as calculations are still going on.

There are also issues giving loans way above what is permissible, issues over processing the loans and documents related to it and the roles of Financial Institutions and Phuentsholing Thromde.

The victims initially went to the RBP to file a complaint who directed them to the ACC. The ACC sent the issue to the Royal Monetary Authority (RMA) since it was felt that straightforward cases of fraud can be handled by RMA and the banks, but the RMA after deliberating the case and doing some due diligence sent it back to the ACC.

The RMA sent the case to ACC as it does not think this is a straightforward matter of a normal Non Performing Loan or even a simple fraud case, but that it suspects something deeper including possible collusion by staff in the banks, Phuentsholing Thromde and others.

According to another source, the Royal Audit Authority (RAA) which is doing an audit of the Bank of Bhutan (BoB) has found around Nu 300 mn in irregularities and issues over loans to Phajo Nidup. The issues here involve double mortgaging of the same asset, loans in the name of his companies, getting loans on collateral like a work supply order, excess valuation of loans, giving loans on part of an asset etc. The memos have been issued and replies are awaited from the BoB.

Another bank with major exposure is DrukPNB, but the bank declined to share details. In the case of BNB, a source said the case being put to court is for around 50 mn.

One big question is why the Credit Information Bureau (CIB) system did not catch this. Here, according to a source there are flaws in the CIB as it depends on the information that banks share with it and there are certain loopholes like if a person with one lagthram applied for loans to multiple banks at the same time then a check by the banks would all show no loan on the CIB. Another loophole in the CIB system is that some banks update the information only on a monthly basis.

5 acres 33 decimals case example

While there are many cases involving Phajo Nidup one case of 5 acres 33 decimals in Pekarzhing under Phuentsholing Thromde gives the modus operandi used.

The land originally belonged to a Menuka Nirola who had allowed another person to take a loan of Nu 28 mn on it from 2011-2018 from the DrukPNB. There were some issues and the matter went to court, and the litigants looked for a buyer when Phajo came forward and told the court he would pay the amount and so the verdict said the Thram should be transferred to him. Phajo cleared the loan from DrukPNB.

In the meantime, Phajo’s victims say that Phajo told them that he has the above land partially mortgaged in BoB and there was still additional land they could buy from him. So land sale deeds were drawn up and signed and to make payment those people took loans from the remaining portions of land in BoB and paid Phajo with Phajo as the guarantor.

However, the 12 or so buyers were later not able to get the Thram for the land as it was double mortgaged in other financial institutions like DrukPNB and BDBL.

One of them, Buddha, who paid Nu 14 mn to Phajo and did not get his lagthram said that when he approached the city for the lagthram he came to know about the double mortgages on the land and he even wrote to the concerned agencies on the issue in 2019, but till date there has been no action.

“I have neither got my money back nor the lagthram and the banks are chasing us for the money,” said Buddha.

Then later despite having mortgages on the land and buyers yet to get the land, Phajo managed to somehow sell the land to a certain Jigme and even got the lagthram issued from Phuentsholing Thromde in 2020.

Jigme then took a loan of around Nu 100 mn from RICBL based on this lagthram and he sold the lagthram to a Sonam Phuentsho.

Sonam said, “The loan was transferred to me but I did not get the lagthram as the land had been double mortgaged before in the BoB and DrukPNB bank. I fought a case with Jigme and the court verdict came saying that the lagthram should be transferred to me, but when the court contacted the Thromde it said it cannot transfer the land to me due to past double mortgages.”

After being charged by Sonam Phuentsho, Jigme then sued Phajo in court over the double mortgage.

Two big questions here are, firstly, how the banks and Phuentsholing Thromde did not know about the land already being mortgaged and secondly, how did Phuentsholing Thromde issue a lagthram for a land still under mortgage.

Sonam said he refused to pay the 100 mn loan against his name in RICBL without getting the lagthram, and so the NPL is now in his name. He asked how Phuentsholing Thromde and the banks did not check this double mortgage.

Two others cases

In a separate case and plot again under Phuentsholing Thromde, concerning another Sonam, he bought the land from Phajo again by taking a loan on the land in mortgage and paying the money to Phajo with Phajo as the guarantor.

However, here too Sonam found the land double mortgaged under some other bank and filed a case in the Phuentsholing Dungkhag court which he won. Phajo agreed to take the land and give the money but when he did not pay the court issued an arrest warrant.

However, here Sonam said that Phajo approached the Supreme Court directly. The current Chief Justice granted a stay of 6 months and when that was over he got a stay of another month.

Sonam is still awaiting his money despite winning the case in court around two years ago.

When the paper asked the CJ on why the stay was granted CJ Chogyal Dago Rigdzin said the stay was not an indefinite timeframe, but a very short duration based on a genuine justification.

Another person called Samten also had a similar experience with Phajo over another plot of land in Phuentsholing that was sold to him in a similar manner. He took took a loan on the land from the bank and paid the money to Phajo who was supposed to transfer the Thram later.

Here again Samten found that the land had already been double mortgaged for millions in other banks.

He said he filed a court case and as per that Phajo is supposed to pay him 9.5 mn but he only got 1.5 mn with the balance 8 mn yet to be paid.

Another modus operandi of Phajo was to give the impression that he is buying people’s property and so make them sign a lot of forms including on loan documents and authorization letters saying he will be taking loans to pay them.

However, the real owners of the land were not aware that they had ended up signing away their land as collateral for which Phajo took the loan and only found out when the banks sent them notices for the loans.

There are several other similar cases.

Victims blame Thromde and Banks too

In all the above cases and more, the victims of the case blame not only Phajo but the Thromde for not alerting them on the land records or the banks on the double mortgages, and also the banks for not doing due diligence in checking with other banks on their own.

Some of the victims said that what normally happens is that when a person goes to a bank for a loan after all the formalities the bank fills up and sends a Lien Noting form to the Thromde which is essentially a claim on the property.

The Thromde land section’s job is to take the lien noting and look up the the details in a register or records to check the ownership, the validity of the lagthram, the size, the land classification or type, if it has already been sold or transacted and if there are any issues.

The concerned officer then makes a recommendation and goes with the lien noting and the register and the Executive Secretary gives the final signature.

The lien noting is sent back to the bank who is assured of the collateral and the bank then does some more due diligence and moves to release the money.

However, here the victims says that since the Thromde is the custodian of the land and when all banks send lien notings to it, how was it possible for the Thromde to not know about the earlier mortgages. They allege that there could have been possible collusion in the matter.

On the other side, the victims also question the banks for not doing their due diligence. A credit officer simply cannot go with the lien noting of the Thromde, but he or she should have done checks with other banks to see if this property is not mortgaged with them.

Even after a lien noting from the Thromde, the bank officials along with an engineer are supposed to go to the site and survey and study it.

Here too the victims suspect that some bank employees may have helped Phajo from inside, otherwise none of this would have been possible.

Thromde and Banks reply

The current Phuentsholing Thromde Executive Secretary Lungten Jamtsho said that though these issues took place mainly before his time he said the problem is actually a systemic one.

He said banks lien noting are sent to it more to find out about the plot details, the precinct, the exact size, if it is sold to another party etc.

He said the land section follows the instructions of the National Land Commission and there was no clear instruction or form to save the lien noting information.

He said in the past the Phuentsholing Throme saved it on an excel sheet but there was no proper system.

He said this was the case in other thromdes and Dzongkhags and as double mortgages frauds went up the NLC came up with the Land Mortgaging System and now everything is online. The ES said that in the past it is possible that the information in the excel sheet may have been overlooked.

However, the ES asked that banks are supposed to give loans only after getting the original lagthrams so how is it possible that so many banks gave loans when there is only one original lagthram for one plot.

DrukPNB decline to answer any questions on the issue. There was no response from RICBL and BDBL as well.

T-Bank said the amount due is only around 10 mn and it is in the process of recovering it.

BNB said its due amount is around Nu 50 mn for which it is filing a case in court for recovery.

A BoB official said that a person can take multiple loans on one collateral as long as the loans are covered by the value of the collateral. They said that loans for supply order are also allowed in banking.

The official said that as per rules no banks are allowed to give loans above valuation. The official said that while double mortgages have happened it is not allowed.

The BoB already has NPL recovery cases against Phajo in the Phuentsholing and Chukha Dzongkhag courts as Phajo took loans from multiple BoB branches.

A source in one of the banks said that on the issue of double mortgage the Thromde gets the lien noting from the banks and so it should have maintained records and so when thromde gave the all clear the banks went ahead.

 While Phajo is the most prominent and biggest case of double mortgages so far the real rot goes deeper. A source said that the reason that some Financial Institutions have such high NPL is also partly due to double mortgages or inadequate collateral where proper checks were not done and people took large loans with no risk to them.

The RMA Deputy Governor Phajo Dorjee (not related to Phajo Nidup) said that the RMA has asked the technical committees in the banks to collect more details on the case and they are working on it.

He said the CIB issue is that it did not provide real time or updated information. He said it is the fault of the banks in the case of double mortgages.

Phajo’s say and story

Phajo Nidup claimed that he had not sold them the land (despite the victims having sale deeds) and he had only helped them out in getting loans.

He said he would pay what is due to them and he would also pay the banks what is due to them as the sum total of his collateral and assets is higher then the loans.

On the issue of double mortgages, he said the responsibility is on the banks as the lien noting had been done by them.

Phajo Nidup who is 1986 born is only 35 years old from Paro, Jabana and was formerly in the monk body and from a humble background. In 2013 he came to Phuentsholing and worked as a clerk in the Truck Association for a couple of years after which he opened Choden Transport which was a goods carrier company and he started buying trucks in large numbers by taking loans from the banks. 

A former associate of Phajo Nidup who knows him well said that Phajo in between 2017-2019 had around 13 to 14 land cases in court as he either did not pay the money for the land he bought in time or he did not give the land he sold in time. The cases at the time which did not involve banks then were solved in court.

This former associate said that Phajo had gotten into the real estate business in a big way and starting buying up land which he would mortgage and buy more land and he even ended up buying a water bottle factory.

The former associate said that the main weakness of Phajo was that due to his lack of formal education he was not a good manager of what he was acquiring, and soon his loans and deals started catching up with him. This and a flashy lifestyle.

His victims though have painted a different picture of him in terms of how he fooled them.

The former associate said that Phajo was spoiled in a sense by the banks who gave him unlimited credit and did not due due checks.

He said even the Thromde did not do its job in checking for the multiple mortgages.

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