Indian defaulters who fled UAE find temporary relief due to COVID-19
Dubai: India’s COVID-19 epidemic in two waves since March 2020 has become an unlikely savior for many Indian expats who owe millions in outstanding loans to UAE banks and left the country between 2015 and 2020 .
In early 2020, India and the UAE agreed to make the UAE courts’ verdicts on enforceable defaults in India, making life difficult for Indians who defaulted on their loans and fled. the country.
As a result of the change in the legal status of these cases, many banks in the UAE had hired law firms to take legal action in India to recover their money from the defaulters. Bankers and law firms now say nothing has advanced much due to the COVID outbreak in India and the United Arab Emirates from March 2020.
âObviously, the pandemic has changed the priorities of the banks. Since the first quarter of last year, banks have focused more on new loan write-downs linked to the impact of COVID and historical defaults have been put on the back burner, âsaid the chief legal officer of a large local bank.
India UAE judicial cooperation
In order to facilitate mutual legal assistance in civil and commercial matters, India and the United Arab Emirates concluded on October 25 an “Agreement on judicial and judicial co-operation in civil and commercial matters for the service of summonses to appear, documents courts, commissions, enforcement of judgments and arbitral awards. , 1999 (the Treaty).
Although the treaty was ratified in 2000 and the United Arab Emirates gave effect to the treaty by publishing it in its Federal Gazette in the same year, India had only completed national formalities regarding certain provisions of the treaty at the beginning. from 2020.
As a result, successful parties in UAE legal proceedings were unable to benefit from the treaty and often struggled to enforce judgments in India. India issued a notification on January 17, 2020 declaring the UAE as a âreciprocal territoryâ. The 2020 declaration means that in theory it should now be much simpler and faster to enforce judgments from UAE courts in India.
UAE banks faced massive payment defaults between 2015 and 2017 as a result of the payments crisis that started in the small and medium-sized enterprise (SME) segment.
Much of the delinquency on loans was due to the sudden disruption of the payment cycle in the economy. After a drastic drop in oil prices from 2013, a combination of budget adjustments ranging from the rationalization of spending by state-linked entities and large corporations resulted in delays in payments to SMEs. This resulted in the first stage of defaults by a number of SMEs.
In the absence of viable insolvency proceedings, business owners facing lawsuits and potential criminal charges from lenders have chosen to take the plunge and return to their home countries.
Defaults have had a domino effect on the credit quality of banks, with business failures and job losses adding to the overall volume of nonperforming loans (NPLs).
Bankers said the total defaults in the SME and retail segment are in the range of Dh30-35 billion and of this total Dh25 billion is owed by NRI borrowers.
Retail loans, including loans to small businesses, represent only about 20 percent of the total amount past due, while over 75 percent represent relatively large commercial loans, in the range of $ 20 million to $ 150 million. from Dh.
UAE banks were keen to prosecute large defaulters, with liabilities exceeding MAD 2 million through legal channels, while they were more inclined to prosecute small defaulters through debt collectors in India . However, both channels have virtually disappeared for a year as the pandemic slowed down or interrupted the legal process.
In the case of the use of loan collectors, banks face great resistance from law enforcement agencies and local courts. The use of debt collectors has become illegal following a court ruling. In 2019, a division chamber of the High Court of Kerala ruled that foreign banks or financial institutions cannot hire debt collectors to realize the overdue loan amount of a borrower in the country.
The Chamber of Judges K. Vinod Chandran and Judge VG Arun observed that if the non-repayment by the borrower constitutes a criminal offense in a foreign country, the bank could take criminal action against the borrower by the diplomatic channel.
The court made the observations while it had a motion for a brief filed by a woman from Kollam, Kerala, who had returned after working as a nurse in Saudi Arabia against attempts by bank debt collector Al -Rajhi, in Saudi Arabia, to intimidate her and force her to pay the overdue amount.
Banks to keep business going
UAE banks contacted by Gulf News said they would continue to explore all legal options in India to collect their dues from defaulting debtors. âOur priority will be to prosecute large debtors who owe us millions. Many cases are active and once the COVID situation improves, these cases will be reactivated in both the UAE and India, âsaid the head of the SME section of the UAE bank.
Although Kerala’s High Court has banned the use of debt collectors to track and collect overdue retail and credit card debts, banks are considering challenging the ruling in the Indian Supreme Court.