New Delhi - The government is scheduled to move in the Lok Sabha on Monday an amended bill to strengthen the debt recovery laws with an objective to improve the ease of doing business in the country.
Introduced in the Lok Sabha in May, the bill seeks to amend four legislations -- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996.
Following the introduction, the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016 was referred to a Parliamentary Joint Committee.
Here are the key facts you need to know about the bill:
What are the salient features of the Bill?
Take possession of collateral: According to PRS Legislative, the SARFAESI Act allows secured creditors to take possession over a collateral, against which a loan had been provided, upon a default in repayment. This process is undertaken with the assistance of the district magistrate, and does not require the intervention of courts or tribunals. The Bill provides that this process will have to be completed within 30 days by the district magistrate.
It accords the magistrate power to help banks take over the management of a company, in case it is unable to repay loans. This will be done in case the banks convert their outstanding debt into equity shares, and consequently hold a stake of 51 percent or more in the company.
Central registry: PRS says the Act creates a central registry to maintain records of transactions related to secured assets. The Bill creates a central database to integrate records of property registered under various registration systems with this central registry. This includes integration of registrations made under Companies Act 2013, Registration Act 1908 and Motor Vehicles Act 1988.
The Bill provides that secured creditors will not be able to take possession over the collateral unless it is registered with the central registry. Further, these creditors, after registration of security interest, will have priority over others in repayment of dues.
Power for RBI: The Act empowers the Reserve Bank of India (RBI) to examine the statements and any information of Asset Reconstruction Companies related to their business. The Bill further empowers the RBI to carry out audit and inspection of these companies. The RBI may penalise a company if the company fails to comply with any directions issued by it, says PRS.
Amendments to the RDDBFI Act: The RDDBFI Act established Debt Recovery Tribunals and Debt Recovery Appellate Tribunals. The Bill increases the retirement age of Presiding Officers of Debt Recovery Tribunals from 62 years to 65 years. Further, it increases the retirement age of Chairpersons of Appellate Tribunals from 65 years to 67 years. It also makes Presiding Officers and Chairpersons eligible for reappointment to their positions.
The Act provides that banks and financial institutions will be required to file cases in tribunals having jurisdiction over the defendant’s area of residence or business. The Bill allows banks to file cases in tribunals having jurisdiction over the area of bank branch where the debt is pending.
The Bill provides that certain procedures under the Act will be undertaken in electronic form. These include presentation of claims by parties and summons issued by tribunals under the Act.
The Bill provides further details of procedures that the tribunals will follow in case of debt recovery proceedings. This includes the requirement of applicants to specify the assets of the borrower, which have been collateralised. The Bill also prescribes time limits for the completion of some of these procedures.
Why is the Act important?
The government has come up with this legislation at a time when there is mounting concerns over loan recovery in view of stressed assets to the tune of over Rs 8 lakh crore in the banking system. Around 70,000 cases involving more than Rs 5 lakh crore are pending in Debt Recovery Tribunals (DRT) and the proposed amendments would facilitate expeditious disposal of recovery
According to minister of state for finance Santosh Kumar Gangwar, 27 public sector banks (PSBs), which constitute 70 percent of India’s banking sector, have written off Rs 59,547 crore in fiscal year ended March 2016.
These are the cases where banks have thoroughly failed to make any recovery from the borrowers, largely corporate clients. In the last three years (FY13, 14 and 15) banks had together written off Rs 1.14 lakh crore. What this also means is so much of depositors’ money has vanished in thin air. This act will help banks to step up their recovery efforts, in turn saving taxpayers' money.
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Updated Date: Aug 01, 2016 11:38:58 IST