DEBT RECOVERY BILL: AIMS TO MAKE DEBT RECOVERY PROCESS FASTER AND EASIER

The Government has introduced “the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill”, 2016 in May. The Lok Sabha has passed the Bill on 1^st August, 2016 that amends four different Acts – 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 Bill is passed by voice vote. The bill will now go to the Rajya Sabha for its approval.

The Recovery of Debts due to Banks and Financial Institutions Act gives 180 days for disposal of recovery applications, but cases are pending for many years due to various adjournments and prolonged hearings. As per recent reports there are more than 70,000 cases that are pending before DRTs (Debt Recovery Tribunal) which shows a weak recovery process which has in turn increased the number of NPA’s (Non Performing Assets) in the market which if not controlled will reduce the cash flow to a minimum.

“The Bill aims to improve ease of doing business and facilitate investment leading to higher economic growth and development,” said Finance minister Arun Jaitley.

Key Points of “the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill”:

• RBI oversight of the asset reconstruction companies.
• Central registry to records details of all secured assets.
• Priority of debt due to secured creditors over all others debts and claims.
• Time for filing appeal to the Appellate Tribunal cut from 45 days to 30 days.
• 50% of debt to be deposited for filing an appeal. It can be cut to 25% in some cases.
• Right to take over secured property; appointing receiver for such property and to sell the same.
• Time can be given to the borrower if 25% of the debt is deposited with promise to pay full amount.
• Depositories empowered to transfer asset to Asset Reconstruction Companies (ARCs).
• A fit and proper person can sponsor an Asset Reconstruction Companies (ARCs).
• Protection for secured creditors, RBI, central registry or any of their officers for action taken in good faith.

The amendments are aimed at faster recovery and resolution of bad debts by banks and financial institutions and make it easier for Asset Reconstruction Companies to function. Along with the new bankruptcy law which came into effect earlier this year, the amendments will put in place an enabling infrastructure to effectively deal with non-performing assets in the Indian banking system.

It also seeks to cut the time for resolution process by providing for summons, notices, communications or intimation to be served in electronic forms. It also provides for filing of recovery applications, documents and written statements in electronic forms and display of interim and final orders of the Debt Recovery Tribunals and Debt Recovery Appellate Tribunals on their websites.

Parul

Senior Associate

The Indian Lawyer and Allied Services