Debt recovery bill
The Cabinet recently approved ex facto ‘The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016.”
The Cabinet recently approved ex facto ‘The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016.” The bill aims to improve ease of doing business, facilitate investment leading to higher economic growth and development, it added. It would help in in faster recovery of bad loans.
Introduced in 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.
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 are pending in Debt Recovery Tribunals and the proposed amendments would facilitate expeditious disposal of recovery applications.
The SARFAESI Act allows secured creditors to take possession over a collateral, against which a loan had been provided, upon a default in repayment, in 30 days, with the help of District Magistrate, if the banks convert their outstanding debt into equity shares, and consequently hold a stake of 51% or more in the company. The Act creates a central registry to maintain records of transactions related to secured assets.
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.
The Act empowers the RBI to audit and inspect Asset Reconstruction Companies and penalize if company fails to comply with any directions issued by it. Amendments to the RDDBFI Act increase 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. 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.