Bankers Notebook

Measures to be taken for recovery of Banks Overdue under various works of investment:

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5. wmvi KwcZ msNi mfvcwZ I mv`Ki ^vi _vKe|


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miKvix I Avav-miKvix cwZvb (Govt. & Semi-Govt. Organization)t

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Bai-Murabaha and Bai-Murabaha Post Import Investment

Bai-Murabaha:

A contract between a Buyer and a Seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments.

Essential conditions of Bai-Murabaha Investment:

1. The goods desired by the client is first purchased by the Bank and ownership of the Bank on the goods is established i.e. the Bank must transform its money into goods.

2. After purchase of goods the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on to the client.

Bai-Murabaha Commercial Investment:

Investment for purchase and sale of goods to individual or firm or company shall be termed as Bai-Murabaha Commercial Investment.

Bai-Murabaha Post Import Investment:

Investment for import from abroad and sale of goods to individual or firm or company for trading proper shall be termed as Bai-Murabaha Post Import Investment.

Hire Purchase & Hire Purchase Shirkatul Melk InvestmentDisbursement, Recovery and all Accounting Procedure

Hire Purchase:

A contract under which the Bank invests in assets/property/article i.e. equipment, machinery, building, transport or other durable article for the client against an agreed rental together with an undertaking form the client to make full payment of price to the Bank either in lump-sum or by periodical installment for the purpose of eventual purchase of the concerned rented assets/ property/article

Meaning of Hire Purchase Under Shirkatul Melk:

In Hire Purchase under Shirkatul Melk both the Bank and the client supply equity in equal Or unequal proportion for purchase of an asset like Land, building, Machinery, transport etc. Purchase the Asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share part or portion of the asset owned by the Bank is leased out to the client/partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share part/portion to the client against payment of price fixed for that part either gradually part by part or as a whole within the lease period or after the expiry of the lease agreement.

Stages of Hire Purchase Under Shirkatul Melk:

Hire Purchase Shirkatul Melk agreement has got three stages:

i. Purchase under joint ownership

ii. Hire

iii. Sale and or transfer of ownership to the other partner lessee.

Categories of Hire Purchase Under Shirkatul Melk:

a. Hire Purchase under Shirkatul Melk Commercial

b. Hire Purchase under Shirkatul Melk Industrial

c. Hire Purchase under Shirkatul Melk Agriculture

d. Hire Purchase under Shirkatul Melk Transport

e. Hire Purchase under Shirkatul Melk Real Estate

f. Hire Purchase under Shirkatul Melk Scheme

Documentation:

Before purchasing the Assets/at the time of disbursement, collateral securities as mentioned in the sanction letter along with charge documents/other documents to be obtained duly filed in, signed, stamped, verified and witnessed.

Before purchasing the Asset/property by the Bank

a. Hire Purchase under Shirkatul Melk sanction advice duly accepted by the client.

b. Hire Purchase under Shirkatul Melk agreement

c. Letter of Pledge (deal wise)

d. Single Party DP Note (CF-2) if there is no guarantor.

e. Double Party DP Note (CF-2) if there is no guarantor(s) to be made by the client in favour of the guarantor by the later in favour of the Bank.

f. DP Note Delivery Letter (CF-3)

g. Letter of Hypothecation (CR-5) for the Asset(s) and Clients stock in trade/work in process.

h. Letter of disclaimer (CF-15) if stored in clients/partys own/ hired godown.

i. Insurance Policy (if stored in clients/partys godown/yard under Banks effective control) duly recorded insurance Register (B-39)

j. Letter of Guarantee (CF-14)

k. Balance Confirmation Letter (CF-16)

l. Letter of Installments (CF-7)

m. Letter of Authority

n. Original Purchase Memo/Invoice of the goods (duly accepted & received by the client).

If the Investment is made collaterally secured by Mortgage of Property:

a. In case of Equitable Mortgage, Memorandum of Deposit of Title Deeds (MDTD) signed by the owner of the property.

b. In case of Legal Mortgage, Registered Mortgage Deed should be obtained.

c. Personal Guarantee of the owners of the property.

d. Original Title deed(s), Bia-Deeds with CS, RS, SA, Mutation Parcha, DCR Record.

e. Up-to-date rent receipt.

f. Non Encumbrance Certificate With SFR

g. Site plan (Map/Naksha) of the Mortgage property.

h. Valuation Certificate

i. Lawyers Certificate

j. Affidavit

k. Power of Attorney

l. SRO receipt (in case of Certified Mortgage Deed)

m. Approved plan

Other Documents:

Documents to be obtained in respect of

a. Nature of Investment Clients (namely, Ltd. Company, Partnership firm, co-operative, trust Organization etc.)

b. Mode of Investment/Facilities

c. Types of Securities (land, land & building, TDR, shares of Public Limited Company, savings Certificate/bond, life insurance policy, pledge of goods, hypothecation of goods, work orders etc.

Calculation of purchase price under Hire Purchase Shirkatul Melk

A.Purchase Price:

SerialParticulars/Quantity of Asset property desired by the clientRateAmountRemarks

01

02

03

04

Subtotal

B. Other Expenditure:

a. Conveyance/TA/DA of the Bank Official or the Agent (if any).

b. Commission paid to the Agent (if any).

c. Cost of Remittance of fund

d. Transportation cost

e. Transit insurance & Pocket expenses

f. Other expenses except interest incurred (if any).

(Interest element if any, is to be paid by the Client himself)

g. Godown Rent, Godown Staff Salary and Godown Insurance Premium.

(if the Goods are kept in the Banks Godown before sale to the client).

Total (a + b + c + d + e +f + g) =

C.Total Cost (A+B):

D.Clients Equity:

E.Banks Investment (C-D):

Documentation Under Various Modes of Investment

Document:

A document is a written statement of facts of evidence arising out or particular transaction duly signed by the authorized person(s) having legal status, which on placement may bind the parties (Bankers & Customers) answerable and liable to the court of law.

Characteristics of Documents:

[i] It should be written statement of facts

[ii] The facts should cover legal aspects

[iii] It must be an evidence of certain transaction

[iv] It should be signed by the persons having authority and legal status

[v] It must be at least two witnesses

[vi] It should be stamped as per types of documents and the law of the state.

Documentation:

The execution of documents in proper form and according to the requirements of law is called documentation.

Advantages of Documentation:

If the documents are duly and properly executed and are perfect in all respects, the bank will have following advantages:

It procures a written evidence of transaction.

It identifies the customers and guarantors.

It identifies the securities.

It identifies the nature of charge created by the Bank.

It helps the Bank to include protective clauses to safeguard the interest of the Bank.

It can be accepted as evidence in the court of law

It helps the Bank to comply with the requirement of Bangladesh Bank and other instructions/ regulations of individual Bank for better management of investments.

Competence of Contract:

As per section II of Contract Act 1872, a person is competent to contract who is:

[a] Of the age of majority according to the law to which he is subject.

[b] Minority age is 18 years and is relaxed to 21 years if the court appoints a guardian for the property or person of a minor.

[c] Of sound mind i.e. not insane, lunatic or mad.

[d] Not disqualified from contracting by any law to which he is subject e.g. un-discharged insolvent.

Steps in Documentation:

For obtention of proper and correct documents the bankers should follow the steps mentioned below at the time of execution of documents by the customers

[a] Legal capacity: The Bank should ensure not only that the documents are correctly executed but also that the persons executing the documents have the legal capacity.

[b] Prescribed From & Required Documents: Each bank has its own printed or prescribed forms to be taken for various types of investments. Required forms/documents to be obtained properly depending upon the type of security, mode of investment and the type of executants. Other required documents drafted by legal advisor inserting necessary clauses to safeguard the interest of the Bank is to be obtained.

[c] Stamping on Documents: An unstamped or insufficiently stamped document is not admitted as evidence in a court of law and cannot form the basis of a suit. So that the documents must be stamped according to the requisite stamp duty of the country.

[d] Execution of Documents: The banker should ensure proper execution of documents to safeguard the Banks interest. All columns should be properly filled in. Documents should never be antedate, nor post dated, neither they should be obtained in double dates, i.e. with same date. The date of document must always be later than the date of the stamp purchased. Alteration, corrections, cutting, interlining, if any, should be authenticated by all the executants by putting their specimen signatures near the same.

[e] Attesting of Witness: some of the documents require to be compulsorily witnessed by two or more persons. Its means that the execution of the documents have been made in presence of the witnesses and they saw the same. Mortgage Deed, Transfer Deed, gift deed of immovable property will etc. requires at least two witnesses.

[f] Registrations of Charges: All documents do not require registration. Certain documents such as mortgage deed, irrevocable power of attorney will have to be registered in the office of the sub registrar.

Mode of Charging Securities:

Each type of Investment requires different type of documents. The documents also vary depending upon the type of security. To acquire legal right on the property proposed as security, a charged to be created on the same. There are different modes of charging securities such as:

[a] Lien: Lien is the right of a Bank in possession of goods or securities belonging to a customer to retain them until an investment due is paid. Lien differs from other forms of charges in respect that it does not arise out of an implied or express agreement. the right of lien arises in law out of business dealings between the parties.

[b] Assignment: An assignment means a transfer by one person of a right, property or debt (existing or future) to another person. The person who assigns the right property or debt is called the assignor. The person to whom the rights etc. are assigned is called the assignee.

[c] Right of Set Off: Set off means the total or partial margin of a claim of one person against another in a counter claim by the latter against the former. It is in effect the combining of accounts between a customer and a Bank so as to arrive at the net balance payable to one or the other. It is a right, which accrues to the banker as a result of the banker-customer relationship.

The principal of set off is based on the concept of appropriating payment in two accounts where the account is held in the same right and same capacity. The right of set off may arise as a statutory right in respect of a contractual relation or a relationship at law in which one of the parties may appropriate and adjust the amount payable by the same party to the said person.

[d] Pledge: A pledge is a bailment of goods as security for the payment of a debt or the performance of a promise. Bailment is the delivery of goods by one person to another for some purpose under a contract that the goods shall be returned or otherwise disposed of according to the directions of the person delivering them when the purpose is accomplished.

[e] Hypothecation: In case of Hypothecation, the possession control and ownership of goods remain with the customers. An equitable charge on the security is created by the customer in favour of the Banks. This is done by the customer by executing a document, known as agreement of hypothecation. The agreement provides that in case of need the charge of hypothecation can be converted into pledge at the option of the banker and the customer undertakes to give possession of the hypothecated stocks to the banker as pledge whenever called upon to do so.

[f] Mortgaged: Transfer of the Property Act, 1882, Clause 58(a) defines "Mortgage" is the transfer of an interest in specific immovable property for the purpose of securing:

i. The payment of money advanced of to be advanced by way of loan/Investment

ii. An existing or future debt, or

iii. The performances of an agreement that may give raise pecuniary liability.

Objectives of Mortgaged Properties:

Immovable Properties

Transfer of Interest

Right/Ownership not Transferred

Possession not Transferred

Location Site, Area, Boundary etc. are Specific & Identifiable.

Common Compulsory Documents:

[i] Demand Promissory Note (depending upon the types of customers)

[ii] Letter of Agreement

[iii] Acceptance of Terms & Conditions laid down in Sanction Advice.

Documents varies depending upon the types of:

[i] Facilities/Investment

[ii] Types of Customers &

[iii] Types of Securities.

[I]Documents in respect of various types of Investment:

01. Bai-Murabaha:

Demand Promissory Note and Demand Promissory Note Delivery Letter

Letter of Agreement

Letter of Authority (if required)

Letter of Pledge

Insurance Policy

Bai-Murabaha Agreement

Acceptance of Sanction Terms

Original Purchase Memo/Invoice of the Goods (duly accepted and received by the client)

Purchase Schedule

Letter of Disclaimer

Any other documents as stated in Sanction Letter.

02. Bai-Muazzal:


Letter of Agreement


Letter of Hypothecation

Insurance Policy

Bai-Muazzal Agreement



Purchase Schedule

Stock Report



03. Musharaka:


Letter of Agreement


Letter of Hypothecation/Pledge

Insurance Policy

Musharaka Agreement



Purchase Schedule

Stock Report



04. Hire Purchase:


Letter of Agreement


Insurance Policy

Hire Purchase Agreement



Purchase Schedule

Stock Report

Registration of Transport in the mane of the Bank

Photocopy of Blue Book and Rout Permit


05. Guarantees:

Letter of Request from the Client

Requisite Margin

Counter Guarantee

Personal Guarantee


[ii]Documents in respect of various types of Customers:

01. Partnership Firm:

Demand Promissory Note & Demand Promissory Note Delivery Letter

Joint or/and Several Party Demand Promissory Note

Letter of Partnership signed by all partners

Registered Partnership Deed

Letter of Guarantee (All Partners).

02. Joint Account:


Registered Partnership Deed

Letter of Guarantee

Letter of Agreement

Acceptance of Sanction Letter.

03. Private or Public Limited Company:

Demand Promissory Note & Demand Promissory Note Delivery Letter (All Directors)

Joint or/and Several Party Demand Promissory Note by all directors

Letter of Guarantee (All Directors)

TIN Certificate

Declaration Letter

Letter of Undertaking

Certified copy of Memorandum & Articles of Association

Certificate of Incorporation (Private Limited Company)

Certificate of Commencement (Private Limited Company)

List of Directors with their Present and Permanent Address

Resolution accepting Sanction Terms & Conditions and authorizing any Director to execute docs


Registration of charges with the Joint Stock Companies

Certificate from Registrar of Joint Stock Companies in respect of creation of charges

Declaration of Assets of the Directors

Other Documents as per Sanction Letter.

04. Trust Organization:

Charge Documents shall be signed by either

a. Person authorized by all members of the trust committee, if trustees ate authorized to delegate their powers by the Trust Deed. Or

b. All trustees

Trust Deed

Resolution of the Board of Trustees

Personal Guarantee of all the Trustees

Caution: Trust Organization must have borrowing power as per Trust Deed, otherwise such organization will not be empowered to raise finance form the Bank.

05. Co-operative Society:

By-laws of Co-operative Society

Clearance from the Registrar of Co-operative Society

Letter to be issued to the Registrar of Co-operative Societies by Register A/D post after allowing facilities.

Copy of Certificate of Registration

Resolution of General Meeting of Executive Committee/Managing Committee/ Governing Body

Personal Guarantee of the Office Bearer of the Society in personal capacity.

[iii]Documents in respect of various types of Securities:

01. Landed Property:

[a]In case of Free Hold Land:

Original Title deed

Bia Deed

CS, SA & RS Parcha

Up-to-date Rent Receipt

Mutation Khatian with DCR

Non Encumbrance Certificate With SFR

Valuation Certificate

Site Map & Location Map

Legal Opinion

Affidavit

Registered Power of Attorney

Mortgaged Deed

SRO Receipt (in case of Certified Mortgaged Deed)

Memorandum of Deposit of Title Deeds

Resolution (in case of Limited Company)

Personal Guarantee (owner of the property).

[b]In case of Lease Hold Land:

Original Allotment Letter

Possession Letter

Dues Clearance Certificate

Original Lease Deed

Sale Permission Letter

Original Title Deed (in case of transfer of lease property)

Bia Deed

Up-to-date Rent Receipt

Mutation Khatian with DCR

Non-Encumbrance Certificate with SFR

Mortgage Permission Letter from Competent Authority

Valuation Certificate

Site Map & Location Map

Legal Opinion

Affidavit

Registered Power of Attorney

Mortgaged Deed

SRO Receipt (in case of Certified Mortgaged Deed)

Memorandum of Deposit of Title Deeds

Resolution (in case of Limited Company)

Personal Guarantee (owner of the property).

02. Land & Building:

Land related Documents (mentioned above)

Soil Test Certificate

Approved Plan

Rates & Taxes Receipt

Insurance Policy

TIN Certificate.

03. Term Deposit Receipt:


Letter of Continuity

Letter of Agreement

Acceptance of Sanction Letter

Letter Lien of TDR

TDR duly Discharged in favour of the Bank

Letter of Authority for renewal & encashment

Marking of Lien on the face of the TDR and in the Register.

04. Customers Personal Security & Guarantee of a Third Party:

Double Party Demand Promissory Note made by the customer in favour of the guarantor and endorsed by the latter in favour of the Bank

Other related Documents as per Sanction Terms

05. Collaterally Secured properties belonging to Third Party who should be Guarantor:

Double Party Demand Promissory Note made by the customer in favour of the guarantor and endorsed by the latter in favour of the Bank

Other related Documents as per Sanction Terms.

06. Pledge of Shares of Public Limited Company:

Original Share Certificate (Minors share will not be accepted)

Blank Share Transfer Deed in duplicate duly signed by the holder

Share Delivery Letter addressed to the Bank

Confirmation of the Share issuing company regarding lien of the shares

Letter of Authority to collect dividend and bonus shares

Letter of Lien/agreement for pledge of Shares

Declaration regarding title of share.

07. Savings Certificate/Bonds etc.:


Letter of Agreement

Acceptance of Sanction Letter

Letter of Lien

Savings Certificate/Bonds etc. duly discharged & accompanied by identity slips

Updated Letter of Authority addressed to the issuing authority to receive the proceeds by the bearer of Bank (duly signed by the holder).

08. Life Insurance Policy:

Policy of original duly assigned in favour of the Bank and surrender value certificate from the Insurance Company

Letter of Lien

Letter of Undertaking for premiums to be paid regularly by the insured

Notice of Assignment to be registered with Insurance Company

Age Admittance Certificate (if not mentioned in the policy)

Updated Letter of Authority addressed to Insurance Company to receive payment of surrender value by the Bank as assignee.

09. Pledge of Goods:


Demand Promissory Note Revival Letter (Blank)

Letter of Agreement


Letter of Pledge

Insurance Policy


Any other documents as stated in Sanction Letter


Stock Report

Letter of Disclaimer.

010. Hypothecation of Stocks in Trade:


Demand Promissory Note Revival Letter (Blank)

Letter of Agreement


Letter of Hypothecation

Insurance Policy


Any other documents as stated in Sanction Letter


Stock Report.

011. Against Work Orders/Supply Bills:

Letter of Assignment

Agreement for advance against documents evidencing obligation to pay duly signed by the borrower

General Irrevocable Power of Attorney executed by the borrower authorizing the disbursing authority to make payment of all bills receivable directly to the Bank and authorizing to the Bank to collect bills

Letter of Authority

No Objection/Clearance Certificate from the disbursing authority regarding issuance of cheques in favour of the Bank

All other documents as per Sanction Terms.

PAGE [Note Book of Islamic Banking: Page-13]