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Union Cabinet approved Bill to fast track recovery of bad loans

Jun 16, 2016 12:00 IST

The Union Cabinet on 15 June 2016 approved the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016. It was introduced in the Lok Sabha on 11 May 2016.

The bill seeks to improve ease of doing business and thereby, attract investments into the economy by fast tracking recovery of bad loans.

Primarily, the bill seeks to amend four existing legislations, namely, -

i. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002

ii. Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act, 1993

iii. Indian Stamp Act, 1899

iv. Depositories Act, 1996

Highlights of the Bill

Amendments to the SARFAESI Act, 2002:  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.

• In addition, the Bill empowers the District Magistrate to assist banks in taking over the management of a company, in case the company 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.

• It 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.

Amendments to the RDDBFI Act, 1993:  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.

• 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.

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