Abul Hossain concluding his two-part article on investment documentation

Weak and fake documents have become a headache of the bankers all over the world. The bankers must take utmost care in documentation since they deal with public money and will be held liable for non-realisation/nonrecovery of the same due to weak and fake documentation/problems in documentation.

Clients and their legal advisers sometimes avail advantage of weak and fake documents/shortage of documentation in the court. In that case sometimes, the court gives verdict in favour of the client against the bank. As a result, the prospect of recovery of bank dues becomes bleak. As such, bankers should adopt utmost care at all stages of documentation before disbursement. Since, irregularities/lapses at any stage may imperil the interest of the bank and also put the officials concerned in trouble.

The bankers should ensure the

following:

i) Copy of application form duly signed by the client and verified by the banks officials;

ii) Bank officials should be conversant with the laws and practices;

iii) A bank officer must adopt a strict professional approach in execution of documents.

iv) The first duty of the bank official is to verify the genuineness of the documents and correctness of the title, proper identification of the mortgagor(s). Besides, he should scrutinise the chain of documents personally and from the Record Room, Sub-Registry office, AC land office and Tahshil office.

v) Physical verification of the collateral must be done by Branch Incumbent/Second Officer/Investment in-charge and other responsible officials to ascertain the nature of the collateral and force sale value thereof. Care should be taken in accepting the properties having no entrance to avoid problems in disposing the same in case of need.

vi) Documents should preferably be hand-written not typed. Signature should be verified by incumbent/responsible officer with wooden pencil;

vil) Documents should be executed in the presence of responsible officers. No documents should be handed over to the borrower for obtaining signature of co-borrower guarantor/mortgagor.

viii) Obtaining of NOC from concerned authorities (Rajuk, CAD, KDA, RDA, City Corporation, Pourashava, and Cantonment Board) etc., as the case may require, including checking the latest master plan.

Minor: A minor is not competent to enter into a contract; hence a banker should not invest any money on him. However, if an investment is to be made against a fixed deposit in favour of a minor, the banker should obtain a letter from the guardian of the minor stating that the amount is required for the benefit of the minor. Father is the natural guardian of his minor children. In case of mother, she is to be appointed guardian of the minor children under the Guardianship Act. The guardian should sign all documents in his/her personal capacity.

Power of attorney: Sometimes documents are executed by an attorney on behalf of his principal. In such case the relative power of the attorney should be examined to ensure whether it is in order and confers the requisite power on the attorney to execute documents on behalf of the principal. The power to execute the documents may not be accompanied by the powers to borrow or pledge securities. This point must be kept in view.

There are two types or power of attorney -- special power of attorney and general power of attorney. A special power of attorney is confined to a single transaction and a general power of attorney gives general authorities to act in more than one transaction. It is intended to operate over a length of time.

A power of attorney, if revocable, may at any time be revoked by the principal after giving reasonable notice. A power of attorney is also revoked by the death or lunacy of either the principal or the attorney, or by the principal being adjudicated as insolvent. If the power of attorney is irrevocable, it cannot be revoked or terminated by the death or insanity of the customer. (Section 201 of Contract Act 1872).

If any power of attorney is executed from foreign land the same should be authenticated by the authorised officials of Bangladesh embassy/high commission in that country.

Witnessing/attestation: Some of the documents require to be compulsorily witnessed, such as, a mortgage deed, gift deed or immovable property and Will. At least two witnesses are required on the documents. Certain documents viz, mortgage deed, sale deed of immovable property etc., also require attestation for their validity. In absence of such attestation, the document is void and not enforceable. But documents, such as, promissory note, letter of guarantee, pledge or hypothecation agreement etc. are not required to be witnessed or attested.

Investment to a trust organisation: The copy of trust deed should be duly attested by a Class I gazetted officer and verified by the incumbent-incharge of the branch with the original copy. The trust deed must contain a clause authorising the trustees to do business with banks and to avail investment facilities/borrow from banks.

Acceptance of inherited properties without obtaining original title deed may be discouraged as far as possible for avoiding any type of complications in future. Personal guarantee of all the members of the board of trustees must be obtained.

Investment to co-operative society: Clearance from the registrar of the co-operative societies for doing business and avail facilities/investment from the bank within the annual borrowing limit of the society will be required. Personal guarantee of the office-bearers of the cooperative society must give personal guarantee and a resolution of the management committee must be obtained.

Investment against work order: In case of investment against work order, power of attorney executed by the client authorising the bank to receive bill duly accepted by the authority issuing the work order must be obtained.

Investment to illiterate persons: In case of illiterate persons left hand thumb impression of the client should not be attested/verified by bank officials. This should be done by respectable and well accepted person preferably by banks penal of lawyers with the remark that he has readout the whole mortgage documents and the clients has given LTI by clearly understanding the whole matter.

Investment against mortgage of possession deed: In case of investment against mortgage of possession deed, personal guarantee of the landlord or written consent of the landlord to mortgage the shop/establishment to be obtained along with original possession deed, "Memorandum of Deposit of Title Deeds," tripartite agreement between land owner, client and bank (if possible), written consent of the market committee, if there is any such committee etc.

In case of investment against vehicles/vessels/transport: Joint registration of the same is a must in the name of the bank and the client.

Identification of the mortgagor must be ensured by responsible bank official.

Other suggestions: i) Identification of the mortgagor must be ensured by responsible bank official; ii) The genuineness of the mortgagor must be confirmed by responsible officer. iii) No undemarcated land should be taken as mortgage. iv) Credit report (confidential opinion) to be obtained with declaration of collateral security for avoiding duplicity of security. v) Sign board/wall writing be made mentioning that the property is mortgaged with the bank before execution of mortgage. vi) Due date diary must be maintained by the branch and letter to be issued to the client well before its expiry date. The branch/2nd officer/ investment officer/dealing officials must maintain due date diary and discuss the issue in their periodical Task Force meeting regularly and will also pursue the client vigorously for adjustment of the investment deal on or before due date.

When documents are not acceptable: The bankers should not accept blank or incomplete documents; Unstamped or under-stamped documents, unregistered documents, time-barred documents; and documents with cutting, erasing, overwriting not authenticated under full signature.

The writer is Executive Vice President Establishment and Common Services Division of Islami Bank Bangladesh Ltd. aboulhossain@islamibankbd.com

Financial Express/ Bangladesh/ 10th May 2012