Investment advisers in the UAE warn that there is not escape for NRIs who harbour the thought of escaping the UAE after defaulting on bank loans or personal debts from individuals.
Those who fled the UAE face the prospect of being caught, with bailiff help the debt was recovered and prosecuted in India under a new government of India initiative. This is made possible by a recent gazette notification by India’s ministry of law and justice that recognized the UAE as a reciprocating territory for mutual enforcement of court judgments.
The notification permits courts in India to execute the verdicts issued in UAE civil court cases.
The regulation covers courts across the UAE, from the federal supreme court to the courts of Abu Dhabi Global Markets and DIFC Courts.
The direct impact is that bank loan defaulters who have absconded to their home country can now be prosecuted in India. This opened up the scope for legal and judicial collaboration between the UAE and India. Organizations like iva help you write off loans.
Long arm of law
A number of Indian businessmen and salary earners have left the UAE in the past four years owing to business failures or over-leveraging.
Whenever the Indian rupee weakened the NRIs took advantage of the favourable exchange rate which prompted many to take personal loans or credit card loans unmindful of their repayment capacity, resulting in large scale loan defaults followed by absconding.
Even low salary earners have borrowed beyond their repayment capacity and squandered the money in India or invested in unproductive tools or property.
It is estimated that NRI borrowers who fled the UAE after defaulting on their loan obligations owe the UAE banks more than AED26bn (INR500bn; $7bn; £5.45bn; €6.48bn). Retail loans including small business loans account for only about 20% of the total defaulted amount while more than 75% account for relatively large business loans up to AED150m.
Affected UAE banks are initiating legal action against absconding loan defaulters as a new route has been opened up for them to pursue the case in India also.
Can be prosecuted in India
Defaulters, particularly of small amounts, took the comfort that the banks would not bother to take to legal recourse in view of the cost involved in recovering the debts.
The legal department of a local bank had said that the cost of loan recovery will be a major consideration before they initiate legal action against any defaulter.
The average legal cost of each individual court case in India could be between AED100,000 and AED150,000. If the amount to be recovered is less, the banks would not find it worthwhile to pursue such cases.
Banks in action
Banks are now negotiating with law firms on legal fees on the basis of bulk of recovery cases rather than the number of cases so that big and small loan default cases can be bundled together to make the legal costs lower for the banks.
With this, along with the larger corporate and medium business owners who defrauded them, the banks will chase down smaller and retail defaulters also.
A recent report said that at the peak of the SME sector stress in 2017, UAE banks’ non-performing loans amounted to more than 7.5% of the total loans and was estimated close to AED9bn in that year with Indian borrowers accounting for a major chunk.
Leading UAE banks such as Emirates NBD Group and Abu Dhabi Commercial Bank and GCC banks such as Doha Bank, National Bank of Oman and National Bank of Bahrain are seeking legal action against Indian loan defaulters.
“It at this juncture that the gazette notification in India is coming to the rescue of the affected banks in the UAE. This is also giving a clear message that defaulters cannot escape the law, even in their home country, after defrauding in their host country,” said Benoy Sasi, international lawyer at DIFC Courts, Dubai, who has been approached by many local banks to pursue their case in India.
“The flip side of this legal development is that the notification will work as a deterrent against possible defaulters, particularly small business owners. Many small and medium companies were closed down and thousands of workers left in the lurch as the debt-ridden owners have escaped to their home country. The new development will ensure continuity of businesses in the UAE,” said Jojo James, chief executive officer, Fosbury Wealth Managers, and Partner of Tamim Chartered Accountants.