The Indian Ministry of Law and Justice has now officially recognised UAE's courts, which would enforce its civil decrees in India. The move significantly cracks down on loan defaulters who fled UAE without repaying their debts. Now, at least 9 UAE banks are seeking legal action against Indian defaulters as they vow to recover Rs 50,000 crore in debts.
With the New Delhi's ruling that allows civil cases from Emirati courts enforceable in India, Indian defaulters will be facing legal action. If a UAE bank has a court order in its favour against an absconding Indian defaulter, the bank can pursue legal action against the debtor like a local lender to recover money.
According to the Economic Times report, UAE banks going after Indian defaulters mostly involve corporate loans taken by Dubai or Abu Dhabi-based subsidiaries of Indian companies. The UAE banks, which include Emirates NBD, Mashreq Bank, Abu Dhabi Commercial Bank Doha Bank, National Bank of Oman and National Bank of Bahrain, have connections to Indian companies and citizens through their branches in the Middle East but defaulted their loans due to the business fail or straight-up fraud.
According to the people familiar with the matter, the banks have approached Indian law firms for assistance in the legal process in the country. From sending legal notices to defaulters to approaching the National Company Law Tribunal (NCLT) and filing criminal charges against individuals involved, the Indian law firms will assist UAE banks.
Quid pro quo
By granting UAE courts, including the Federal Supreme Court, the Federal, First Instance and Appeals Court in Abu Dhabi, Sharjah, Ajman, Umm Al Quwain and Fujairah, the "superior" status, the UAE will allow the rulings of Indian courts in civil cases.
"Earlier UAE-based banks had no recourse to enforce judgements directly to recover their corporate or retail loans given to Indians in the UAE, but now they can take action in India. So, now UAE banks can initiate execution proceedings in India after they take a decree from a UAE court and may also explore initiating proceedings under the IBC (India's Insolvency and Bankruptcy Code)," said Ajay Monga, a partner at law firm SNG & Partners.
The new rule patches a major loophole that was exploited by Indian defaulters in the UAE, giving the Emirati banks a chance to get legal aid on international waters.
As great as the understanding between the courts of two countries is, the plan is not entirely foolproof. UAE banks will have to adjust their pace and style of legal operations to match that of Indian court standards.
"If the person is an absconder, how do you trace them? India is a huge country so if a person is not notified of the execution in the UAE, he could argue this before Indian courts. He could say the final judgment was issued in absentia, he was not given a fair chance so the order should not be executed. So we have to see how this new provision is tested before Indian courts also because the Indian judicial system is slow and functions in its own style and pace," Ashish Mehta, founder and managing partner of Ashish Mehta & Associates, said.
Mehta also argues that a shareholder cannot be prosecuted in a loan default charge unless a personal guarantee is given. If the loan was given to a company in the UAE, it is the company that repays the loan, not its shareholder.
There might still be some loopholes here, but it is certainly a start for frustrated UAE finance institutes.