The chilling history of Preetha Shaji's loan saga

Kochi: Satyajit Das, a world-renowned expert on derivatives and other modern financial instruments, begins his bestselling book 'Traders, Guns and Money' with a fascinating anecdote of his experience as a subject expert involving a dispute between two Indonesians and a global financial firm in a London court.

The attorney for the global firm took the Indonesians to task for defaulting on payment obligation. Everyone was anxious till the attorney for the Indonesians ripped apart the arguments of his adversary and forced him to withdraw the case and opt for a more amicable settlement.

 The principle of 'suitability' cited by the attorney led to the settlement. Under the principle of suitability, a lender was duty-bound to ascertain whether a financial transaction is suitable to the requirements of the intended borrower. In case of lack of suitability, the lender is not to enter into the transaction.

The ordeal of Preetha Shaji may not have an exactly matching correlation with the complex world of derivatives, currency swaps and other transactions described by Das.

The history of the loan saga of Shaji, husband of Preetha, however, has some chilling resemblance to the suitability principle. When Lord Krishna Bank provided a loan of Rs 2 lakh in 1994 to the friend of Shaji, the bank was duty- bound to ascertain the person is suitable for the intended loan. The LKB went down to the drain by the end of 1990s with its baggage of reckless lending practices and was taken over by the Centurion Bank before it was swallowed by the HDFC Bank.

The HDFC Bank moving to the debt recovery tribunal (DRT) under the Securities and Reconstruction of Financial Assets Act (Sarfaesi Act) and the DRT ordering selling of the land measuring over 18 cents of land near Edappally for Rs 37 lakh is a story in itself. The most intriguing part of this was agreeing to settle for Rs 37 lakh despite the loan amount of Rs 2 lakh ballooning to Rs 2.7 crore as per its claims. The struggle by Preetha had begun against this injustice as the market value of the property was nearly Rs 2.5 crore.

P.J. Manual and V.C. Jenny, the two leaders who have spearheaded the struggle of Preetha for the last four years, says that the DRT has become an instrument for real estate mafia to get the landed assets of gullible people in the name of default and sell them at a high rate. "The orders of the Kochi DRT office in the past 10 years should be subjected to a social audit by a competent agency to expose the unholy nexus between DRT officials, land mafia and corrupt bankers," Manual said. The struggle has helped to highlight how ordinary people are falling into the debt trap and losing even their small assets, Jenny said.

"We are getting hundreds of complaints from different parts of the state belonging to people from diverse social and economic backgrounds. The mainstream political parties and institutions are not listening to the grievances of such people," Jenny said.

 The court verdict in Preetha Shaji's case is a good example of the need for determined mass agitation to be combined with sound legal defence, Manual said.