Tuesday 2 August 2016

Lok Sabha passes bill to fast track debt recovery


NEW DELHI: The Lok Sabha has passed a Bill that amends four different Acts, seeking to expedite disposal of debt recovery applications that can take many years under the current regime. The changes will strengthen the insolvency framework that is being implemented through the Insolvency and Bankruptcy Code passed by Parliament in May. "One of the big challenges that we face is with regard to the enforcement of
securities and the recovery of debt by financial institutions," Finance Minister Arun Jaitley said moving the Bill in the Lok Sabha, which later passed it by a voice vote. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, amends four Acts — the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002, the Recovery of Debts due to Banks and Financial Institutions Act of 1993, the Indian Stamp Act of 1899 and the Depositories Act of 1996. "In order to facilitate expeditious disposal of recovery applications, it has been decided to amend the said Acts and also to make consequential amendments in the Indian Stamp Act, 1899, and the Depositories Act, 1996," Jaitley said in the statement of objects and reasons of the Bill. 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. "The Bill aims to improve ease of doing business and facilitate investment leading to higher economic growth and development," Jaitley added. Secured creditors can take possession of a loan collateral on default through the SARFAESI Act with the assistance of the district magistrate. The Bill fixes a 30-day timeline for the district magistrate to complete this process and he will also assist the lender in taking over the management if the lender has secured more than 51% stake in the company through conversion of debt into equity.

The Act provides for setting up of a central registry that will maintain records of transactions related to secured assets, which will help prevent fraud by providing clear rights over the assets. It also establishes the supremacy of secured creditors' claim to assets of a defaulter over any other claims including other debts, revenues, taxes, cesses and rates payable to central government, state government or any other local authority. Creditors will not have recourse to the stringent recovery laws if they do not register the secured assets.

The Bill gives the Reserve Bank oversight over the asset reconstruction companies. The amendment to the Stamp Act waives off duty on transfer of assets to reconstruction companies.

The amendment 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. 

 The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016,

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