Open Access Research Article
INTERPLAY BETWEEN SARFAESI ACT AND NPA
Published Paper
Article Details
INTERPLAY BETWEEN SARFAESI ACT AND NPA
AUTHORED BY - K. AASHIKA
INTERPLAY BETWEEN SARFAESI ACT AND NPA
The RBI’s existing
policy on NPA classification is given by the following prudential norms.
An asset,
including a leased asset becomes non-performing when it ceases to generate
income for the bank. A ‘non- performing asset’ (NPA) was defined as a credit
facility in respect of which the interest and / or instalment of principal has
remained ‘past due’ for a specified period of time. The specified period was
reduced in a phased manner as under:
Year ending March 31 Specified
period
1993 Four quarters
1994 Three quarters
1995 Onwards Two
quarters
The
following are the extracts from an RBI publication titled Banking Developments
and Policy Perspectives 1998-99.
To address
the problem of accumulated NPAs, the first Narasimham Committee suggested the setting up of an
Asset Reconstruction Fund, but this suggestion
could not be implemented. Reiterating this arrangement, the second Narasimham Committee suggested the setting up of an Asset Reconstruction Company (ARC). The
ARC, which would take over all loan assets in the doubtful and loss categories, would issue to the
banks NPA swap bonds representing the realizable value of the assets transferred, provided the stamp duties are not excessive.
The international
experience with such arrangements has, however, been mixed. In India,
progress in setting up of ARCs, is yet to be seen partly because the Debt Recovery
Act and other relevant legislations are yet to be strengthened. Besides, the ARCs could engender
moral hazard problems. It is, therefore, necessary to attempt
to make Debt Recovery Tribunals
(DRTs) more effective
in their operation. More importantly, Debt Recovery Systems
need to be improved across the board to ensure
efficiency of the financial sector.
QUOTE
“Debts Recovery
Tribunal” means the tribunal established under sub- section (1) of section 3 of the Recovery of Debts due to Banks
and Financial Institutions Act, 1993 (51 of 1993).
UNQUOTE
1.
DEFAULT IN CONNECTION WITH THE NPA GUIDELINES OF THE RBI
The definition of default has been connected in
this definition with the NPA treatment
as per the directions or guidelines of the RBI. The RBI has issued guidelines for NPA classification for banks[1], as also for non-banking financial institutions.
There are numerous differences between the NPA definition applicable to finance companies and banks.
Therefore, the appropriate NPA guidelines need to be applied to see if the contract
has become an NPA.
1.2.
ELEMENTS OF DEFAULT
There are 4 important elements for establishing a default under this definition:
(a) The borrower must
be a “borrower” within the definition of this legislation. The definition of borrower is connected with two other definitions – financial assistance, and bank / financial
institution. In other words, the counterparties to the financial assistance must be a borrower on the one hand
and a bank or financial
institutions on the other, and the relation that connects the two should be one of a financial assistance.
(b) The financial assistance must be secured.
(c) There must have
been a non-payment of principal, interest or any other sum payable by the borrower. For example, a borrower may have been
called upon to pay inspection charges, service charges
or such other
sums. The issue
is, Can there be a “default”. The
default must be such which can render the account an NPA. In terms of the NPA guidelines applicable to both banks and non-banking financial
institutions, an account is not treated as an NPA except on account
of default of interest or principal.
(d) The definition of
NPA is not related to the magnitude of the default, but its length. So, if the default has continued for a period
which renders the account of the borrower
an NPA, the borrower can be said to be have defaulted. NPA classification,
under the RBI norms, leads to de-recognition of income and cessation of accrual – which is an
accounting event. There is an
accounting dimension of an NPA
classification. In accordance with the directions or guidelines issued by the Reserve Bank implies that the NPA
classification is based on the RBI directives.
A number of banks, particularly
international banks have stricter internal NPA recognition norms. Several international lending agencies also require NPAs to be recorded based on a shorter time-
frame of default than under the RBI norms. However, for the purpose
of recognizing a “default” under this definition, it is only a default as per the RBI directives. A lender cannot narrow down the period of “default”
by any of his own internal procedures for recognizing a default.[2]
(D)
“Financial asset” means debt or receivables and includes;
(i) a claim to any debt or receivables or part there of whether secured or unsecured; or
(ii) any debt or receivables secured by, mortgage
of, or charge on, immovable property; or
(iii) a mortgage, charge, hypothecation or pledge of movable property; or
(iv) any right or
interest in the security, whether full or part underlying such debt
or receivables; or
(v) any beneficial interest
in property, whether
movable or immovable, or in such debt, receivables, whether such interest
is existing, future,
accruing, conditional or contingent; or
(vi) any
financial assistance.
(E) Accounting standards:
Accounting standards contain the definition of “financial assets”
as the accounting standards on accounting for financial instruments relate to financial assets and financial liabilities. A financial asset is thus defined under IAS 39: “A financial
asset” is any asset that is:
(i) cash,
(ii) a contractual
right to receive cash or another financial asset from another enterprise,
(iii) A contractual right to exchange
financial instruments with another enterprise under conditions that are potentially favourable.
(iv) An equity instrument of another enterprise.
(F) “Reconstruction Company”: Reconstruction company means
a company formed
and registered under the Companies Act, 1956 (1 of 1956) for the purpose
of asset reconstruction.
(G) “Reserve Bank”: Reserve Bank means the
Reserve Bank of India constituted under section
3 of the Reserve Bank of India Act, 1934 (2 of 1934).
(H) “Scheme”: Scheme means a scheme inviting
subscription to security receipts proposed
to be issued by a securitization company or reconstruction company under that scheme.
(I) “Securitisation”: Securitisation means
acquisition of financial assets by any securitization
company or reconstruction company from any originator, whether by raising of funds by such securitization
company or reconstruction company from qualified
institutional buyers by issue of security receipts representing undivided interest
in such financial assets or otherwise.
The central feature
of securitization is therefore, the fact there is a segregation of assets and issuance of securities
which are either collateralized by such assets or represent beneficial interest
in such assets.
There are several cases where there is
a segregation of assets, but there is no creation of securities -, for example
if A transfers financial assets
to B, that is the end of the story. B’s acquiring financial asset is not securitization – it is a
loan or portfolio transfer.
A securitization implies
creation of securities premised on such assets – because the central theme in securitization is the conversion
of a financial relation into a financial
product, viz, a security.
2. RECOVERY OF DEBT DUE TO BANKS AND FIS ACT, 1993
|
Agencies
|
|
DRTs (33)
|
|
RDDBFI Act, 1993
|
|
DTATs (5)
|
Recovery Agencies under the RDDBFI
Act, 1993 Debt Recovery
Tribunals
It was
established under section 38 of the RDDBFI Act 1993. The main objective of DRT
is receiving due applications from Banks & FIs against their defaulting
borrowers, and according to this purpose, rules have been outlined and reported
under the RDDBFI Act, 1993. Total thirty-three tribunals have been described by
the central Government in the following regions:
Allahabad,
Dehradun, Jabalpur, Lucknow, Patna, Ranchi, Chennai-3,
Bangaluru-2, Coimbatore, Ernakulum-2, Madurai, Delhi-3, Chandigar-3, Jaipur, Kolkata-3, Cuttack,
Guwahati, Hyderabad-2, Siliguri,
Visakhapatnam, Mumbai-3, Ahmedabad-2, Aurangabad, Pune &Nagpur.
3. DEBT RECOVERY APPELLATE TRIBUNAL
This
tribunal is similarly founded as per an outcome of the RDDBFI Act, 1993. It is responsible for all issues
related to the recovery of dues
in India. 5 DRATs in India
are currently presented.
These are in Chennai, Mumbai, Kolkata, Delhi, and Allahabad. After submitting 755 of the claim due to the lender
or the determined amount by DRT, anyone can appeal against DRT’s decision
within forty-five days from the verdict’s issue
date.
3.1.THE SECURITIZATION ACT, 2002
The
enactment of this Act was expected to be an elixir to the problematic NPAs.
Debt recovery turned to be a
materialistic thing as defaulting borrowers started answering positively, those who were not answering
earlier. The banks' recovery management policies and RBI norms achieved the goals with settlements, and debts recoveries have started
bucketing in. This Act helps in setting up Asset Reconstruction Companies, which support reconstruction and securitization of NPAs. In the cases
where borrowers did not make responses within 60-day from notices, attainment of seizure, or possession order of the securities has been initiated according to the provisions of the Act by banks.
3.2.INSOLVENCY AND BANKRUPTCY CODE (IBC), 2016
Ministry
of Finance constituted the 'Bankruptcy Law Reforms Committee' (BLRC) to draft IBC, 2016, under which corporate
debtors and individual/partnership units both
can be undertaken to resolve
insolvency processes. When an application for insolvency proceedings is given to National Company
Law Tribunal (NCLT), the Insolvency resolution process
starts. The authority
of defaulting debtors
over the management will be shifted
to the insolvency professional, who is appointed
by NCLT. In this way asset stripping on the part of the company’s
sponsors can be avoided and empowers the creditors to supervise the business. A creditors committee
is formed to make a collective
decision by the resolution professionals and this committee recommends the liquidation or revitalization plan
within the stipulated time bound of 180 days. The corporate debtor and all its creditors are bound to the
decisions of the committee of creditors.[3]
3.3 THE SECURITIZATION ACT, 2002
Before
1993, the Companies Act, 1956, was the only option; the banks & FIs have to
recover debt, which used to take years to resolve the problem of NPA. In 1993,
to recover NPAs of banks & FI Act was introduced to give a pace to NPAs
recovery procedure. But soon, lots of cases got piled up for resolution, and
again, the recovery procedures started getting delayed to solve.
Banks and FIs got empowered to
improve recovery, manage problems of liquidity, conversion of long-term assets in marketable securities, bring
about difficulties of liquidity and
asset-liability disparity by applying powers of the Act to lessen NPAs, take-over of securities, and sell them by
adopting recovery methods. In 2002, The SARFAESI
Act was promulgated to recovery the NPAs of the banking & FI sector. This Act was result-oriented and, at the same time, gives superpower to Banks & FIs to fight with increasing NPAs.
|
SARFAESI ACT, 2002
|
|
NPAs
|
The Act got conception with the
constitution of the Andhyarrjina committee and
Narasimhan committee I and II by the central Govt. to examine
reforms of the banking sector and well-thought-out the
requirement for making changes in the legal system related to these areas. The councils proposed
making one more enactment of securitization
for authorizing banks and FIs to occupy the secured assets and to trade them lacking any kind of interference of the courts.
On June 21, 2002, following the recommendations of panels, the president
proclaimed “the securitization and
reconstruction of financial assets and enforcement of security interest
ordnance, 2002”. A bill was presented in the house of people to substitute this ordnance with an enactment, but at that time the parliament
was not in session so it couldn't be
passed. The president was aware that he needs to make a prompt move in existing conditions to give consistent
impact to the arrangement of said ordnance to
manage the recreation of financial assets,
securitization, enforcement of security interest,
and for matter associated in addition to that.
The president, by using the power deliberated by the Indian constitution,
promulgated the SARFAESI ordnance on
21st August 2002. The SARFAESI bill was presented in the parliament to substitute this ordnance
by an Act. On December 17, 2002, The SARFAESI
Bill, with the consent of the president, passed by both the Houses of Parliament. It came on the Statutes
Book as “THE SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (54 of 2002).”
OBJECTIVES AND FEATURES
OF THE ACT
The requirement for the Act stands up due to strengthen banks and FIs for
recovering bad loans from borrowers
since long. The setting up of an innovative entity for managing transactions of securitization
and reconstruction were sturdily suggested by
Verma Committee and Narasimhan Committee I & II and there were
mainly three Objectives behind the foundation of this
Act, which are as follow:
·
The Act controls the financial assets’ transactions of
reconstruction and securitization.
·
The Act controls the enforcement of the security
interest and for matters related to it.
·
The Act authorizes the banks to alter or possession of
management or even take over the securities of the borrowers and trade or rent
out the securities.
The Act
comprises many features to facilitate fast and effective management of NPAs,
which can be enlisted as below:
·
If an account gets defaulter, the banks and FIs can
lead a notice to the borrower to set off all debts within 60 days from getting that
notice. If the borrower fails to do that, then the Secured Creditor may start
the proceeding to take possess secured assets according to provisions of the
Act to recover the loan amount.
·
If Sale proceeds do not compensate, the full amount of
the banks and FIs, as claimed in that case, can appeal to a Court or the DRT to
recover the remaining quantity from the borrower.
? Banks and FIs can, sale the secured assets
or take Action against the guarantors to perform any of the measures.
? If the
borrower is a business entity, then banks and
FIs can possess the management and can appoint directors by
publishing an advertisement in a newspaper, in the local language,
of that zone in which the company
is located.
? Once when
the borrower receives the notice for possession, he cannot isolate the security in question.
? Banks can sell and package advances
through securitization, and these advances
may be operated among banks as bonds
or shares.
? Application of the provisions of the Act cannot be implemented in the following
cases:
? Agricultural land-related security interest is not covered
under provisions of the Act.
? If the due amount
of the principle or interest
is less than 20% for the debt, then provisions
of the Act do not apply to this.
? If financial assets’ security interest
is not exceeding Rs.1 lakh, then it is not covered under the Act.
? Pledge of transportable
assets within the Indian Contract
Act, 1872.
? If a contract or provisional hire purchase, sale, or lease is made by two parties in which no security interest
has been formed.
·
After taking the possession of the security by banks or FIs, the borrower is given the right to appeal and can file before
the DRT within forty-five days from the possession
of the property date. If again, the borrower is not satisfied with the decision of the DRT and can appeal to DRAT
within thirty days since having DRT’s order.
But with every
appeal, the borrower
needs to pay some amount
as prescribed for the
procedure to check dilatory or frivolous appeals. The Act orders
that no command will be approved
in respect of rights talked by or under this Act by overthrowing the dominion of the Civil Courts.
HIGHLIGHTS OF THE PROVISIONS
The
Securitization Act, 2002, encompasses provisions to deliver the following facilities
to manage the recovery of NPAs:
·
Regulation and registration of RCs by the RBI,
·
Enabling securitization of financial assets of FIs or
banks without or with the benefits of fundamental securities,
·
Enabling smooth transference of financial assets from
banks or FIs to the SC for acquiring financial assets by the issue of
debentures or the same nature,
·
Authorizing SCs/ RCs to increase reserves by the issue
of security receipts to QIBs,
·
Enabling the reconstruction of financial assets
acquired with the help of rules that are projected to be discussed with the
banks and FIs,
·
Announcement of an SC or RC listed as a public
financial institution with the RBI for the Companies Act, 1956,
·
Defining security interest as a security that was
given to FIs or banks for due repayment of any financial assistance, including
mortgage and charge on the motionless property,
·
Authorizing FIs and banks to detach securities offered
for financial assistance and to lease, trade, or possess the management in the
occurrence of circumvention,
·
Empowering the secured creditor to apply their rights
to appoint its officers authorized according to the directions made by the
central Government,
·
Empowering borrowers with the right to appeal against
the order of any bank or FI to the related DRT and an additional appeal to the
DRAT,
·
Formation of a central registry for the registration
of businesses involving asset reconstruction, creation of security interest,
and securitization by the central Govt,
o Implementation
of the projected regulation to FIs and banks and enablement of the central
Govt. to outspread the implementation of the projected regulation to NBFC and
other institutions.
METHODS
OF RECOVERY UNDER THE ACT
|
Securitization
|
|
The
Securitization
Act, 2002
|
|
Asset
Reconstruction
|
|
Enforcement of Security Interest
|
The Securitization Act, 2002, is featured to endorse frame-up of ARCs to cope up with accumulating NPAs with the banks and FIs. This Act offers three methods for the recovery of NPAs, which are as follow:
Securitization
In this
method, financial assets get pooled and repackaged to convert into marketable
securities so that they can be invested. The custody of secured assets of the
debtor can be possessed by the securitization company for that the following steps
can be initiated:
a. Procure
financial assets from the bank,
b. Obtain
funds from QIBs by issuing security receipts for procuring the financial
assets,
c. Raise funds
in a set way, and
d. Take
custody of secured assets, which is coupled with financial assets.
Asset Reconstruction
In this method, NPAs get converted into performing assets. Reconstruction of the assets
ought to be performed according to regulations of RBI, and the Act
provides the following apparatuses for assets
reconstruction:
a. Authorize
or altering the management of the company of the debtor,
b. Auction or
rent whole or a part of the company of the debtor,
c. Reprogramming
debts payment due to debtor,
d. In force
security interest,
e. Settle down
debts due to the debtor,
f.
Take over secured assets.
Enforcement of Security Interests
In this
method, the bank or FI is given the power to issue a notice to defaulter the
client for payment of the debt in 60 days since the date on which notice is
issued. If the defaulter goes amiss to fulfill the notice, the FIs or bank may
enforce security interests and take a step as:
a. Occupy the
secured asset,
b. Auction or
rent or allocate the right over the secured assets,
c. designate
Manager to bring about the secured asset,
d. Request
debtors to recompense if any sum is due to the borrower.
Enforcement
of security interest: Not withstanding anything contained in section 69 or
section 69A of the Transfer of property Act, 1882 (4 of 1882), any security
interest created in favour of any secured creditor may be enforced, without the
intervention of court or tribunal, by such creditor in accordance with the
provisions of this Act. The relevant sections are extracted hereunder:
1. Where any borrower, who is under
a liability to a secured
creditor under a security agreement, makes any default in repayment
of secured debt or any instalment thereof,
and his account in respect of such
debt is classified by the secured creditor
as non-performing asset, then the secured creditor may require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor
within sixty days from the date of notice failing which the secured creditor
shall be entitled
to exercise all or any of the rights under
sub-section (4). The notice referred to in sub-section (2)
shall give details of the amount payable by
the borrower and the secured assets intended to be enforced by the secured creditor
in the event of non-payment of secured debts by the borrower.
2. In case the
borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured
creditor may take recourse to one or more
of the following measures to recover his secured debt,
namely:
a. Take
possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for realizing the secured asset;
b. Take over
the management of secured assets of the borrower including right to transfer by
way of lease, assignment or sale and realize the secured asset;
c. Appoint any
person (hereafter referred as the manager), to manage the secured assets the
possession of which has been taken over by the secured creditor;
d. Require at
any time by notice in writing, any person who has acquired any of the secured
asset from the borrower and from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money as is sufficient to
pay the secured debt.
3. Any payment made
by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such
person a valid discharge as if he has made payment to the borrower.
4. Any transfer of
secured asset after taking possession there of or take over of management, under sub-section (4), by the secured creditor
or by the manager on behalf
of the secured creditors shall vest in the transferee all rights in or in relation to the secured asset transferred
as if the transfer had been made by the owner of the secured
asset.
5. Where any action has been taken
against a borrower
under the provisions of sub- section (4), all costs, charges and
expenses which, in the opinion of the secured
creditors, have been properly incurred
by him or any expenses
incidental thereto, shall be recoverable from that borrower
and the money which is received by the secured
creditor shall, in the absence of any contract to the contrary, be held by him in trust to be applied, firstly,
in payment of such costs,
charges and expenses
and secondly, in discharge of the dues of the secured creditor and the
residue of the money so received
shall be paid to the person entitled thereto in accordance with his rights
and interests.
6. If the dues of
the secured creditor together with all costs, charges and expenses incurred by him are tendered to the
secured creditor at any time before the date
fixed for sale or transfer, that secured asset shall not be sold or transferred by the secured creditor, and no further step
shall be taken by him for transfer or sale of
that secured asset.
7. In the case of financing of a financial asset by more than one secured creditors or joint financing
of a financial asset by secured creditors, no secured creditor
shall be entitled
to excise any or all of the rights conferred
on him under or pursuant
to sub-section (4) unless exercise
of such right is agreed
upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall
be binding on all the secured creditors:
Provided that in the case of a company
in liquidation, the amount realized from
the sale of secured asset shall be distributed in accordance with the
provisions of section 529A of the Companies
Act, 1956 (1 of 1956);
Provided further that in the case of a company being
wound up on or after the commencement of this Act, the secured creditor
of such company,
who opts to realise his
security instead of relinquishing his security and proving his debt under provision to sub-section (1) of section
529 of the Companies Act, 1956 (1 of 1956),
may retain the sale proceeds of his secured assets
after depositing the workmen’s dues with the
liquidator in accordance with the provisions of section 529A of that Act;
Provided also that the liquidator
referred to second provision shall intimate that
secured creditor the workmen’s dues in
accordance with the provisions of section
529A of the Companies Act, 1956 (1 of 1956), and in case such workmen’s dues cannot be ascertained, the liquidator
shall intimate the estimated amount of workmen’s
dues under that section to the secured creditor and in such case, the secured
creditor may retain the sale proceeds of the secured
asset after depositing the amount of such estimated
dues with the liquidator;
Provided also that in case the secured
creditor deposits the estimated amount of workmen’s
dues, such creditor
shall be liable to pay the balance
of the workmen’s dues or entitled to receive the excess amount,
if any deposited by the secured creditor
with the liquidator;
Provided also that the secured creditor
shall furnish an undertaking to the liquidator to pay the balance of the workmen’s
dues, if any.
a) “record date” means the date agreed upon by the secured
creditors representing not
less than three fourth in value of the amount outstanding on such date;
b) “amount
outstanding” shall include principal, interest and any other dues payable by the borrower to the secured
creditor in respect of secured asset as per the books of account of the secured
creditor.
8. Where dues of the secured creditor are not fully satisfied with the sale proceeds of the
secured assets, the secured creditor may file an application in the form and manner
as may be prescribed to the Debts Recovery Tribunal
having jurisdiction or a competent court, as the case may
be, for recovery of the balance amount from the borrower.
9. Without prejudice
to the rights conferred on the secured
creditor under or by this section, secured
creditor shall be entitled to proceed against
the guarantors or sell the pledged assets
without first taking
any of the measures specified in clause (a) to (d) of sub-section (4) in relation
to the secured creditor’s assets
under this Act.
10. The rights
of secured creditor
under this Act may be exercised by one or more of his officers
authorized in this behalf in such manner
as may be prescribed.
11. No borrower
shall, after receipt
of notice referred
to in sub-section (2), transfer
by way of sale, lease or otherwise (other than in the ordinary
course of his business) any of his secured assets
referred to in the notice,
without prior written
consent of secured
creditor.
12. Chief
metropolitan magistrate or District magistrate to assist secured creditor in taking
possession of secured
asset:
(1) where the
possession of any secured asset is
required to be taken by the secured creditor
or if any of the secured assets
is required to be sold or transferred by the secured
creditor under the provisions of this
Act, the secured creditor may, for the
purpose of taking possession or control of any such secured asset, request, in writing, the chief metropolitan
magistrate, or the district magistrate within whose jurisdiction any such secured asset or other documents relating
thereto may be situated or found, to take possession thereof, and the chief metropolitan magistrate or as the case may be ,the district magistrate shall, on such request being
made to him –
a) Take possession of such asset and documents relating thereto ; and
b) Forward such asset and documents to the secured creditors.
(2) For the purpose
of securing compliance with the provisions of sub-section (1), the chief metropolitan magistrate or the district
magistrate make take or cause to be taken such steps and use, or cause to be used such force,
as may, in his opinion,
be necessary.
(3) No act of the chief metropolitan magistrate or the district magistrate done in pursuance of this section shall be
called in question in any court or before any
authority.
Right to appeal; any person
(including borrower) aggrieved by any of the
measures referred to in sub-section (4) of section
13 taken by the secured
creditor or his authorized officer, may prefer an
appeal to the Debts Recovery Tibunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken.
(2) Where an appeal is preferred by a borrower,
such appeal shall not be entertained
by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy-five percent of the
amount claimed in the notice referred in sub-section (2) of section 13: provided
that the Debts Recovery Tribunal may,
for reasons to be recorded in writing, waive or reduce the amount to be deposited
under this section.
(3) save as otherwise provided
in this Act, the Debts Recovery Tribunal
shall, as far as may be, dispose of the appeal in
accordance with the provisions of the Recovery of Debts due to Bank and Financial
Institutions Act, 1993 (51 of 1993) and rules made thereunder.
Appeal to Appellate
Tribunal:
1) Any person
aggrieved by any order made by the Debts Recovery Tribunal under section 17 may
prefer an appeal to an Appellate Tribunal within thirty days from the date of
receipt of the order of Debts Recovery Tribunal.
2) Save as
otherwise provided in this Act, the Appellate Tribunal shall, as far as may be,
dispose of the appeal in accordance with the provisions of the recovery of
debts due to Banks and Financial Institution Act, 1993 (51 of 1993) and rules
made thereunder.
Right of the borrower to receive compensation and costs in
certain cases if the Debts Recovery
Tribunal or the Appellate Tribunal, as the case may be, on an appeal filed under section 17 or section 18,
holds the possession of secured assets by the
secured creditor as wrongful and directs the secured creditor to return
such secured assets to the concerned
borrower, such borrower
shall be entitled
to payment of such compensation and costs as may be determined by such Tribunal
or Appellate Tribunal.
AMENDMENTS IN THE
ACT
The
Securitization Act, 2002, has been amended 3 times till March 31 2019 for enhancing
its effectiveness and efficiency in the recovery of NPAs. And the details of the amendment are as following:
Amendment Act 30 of 2004
This
amendment was initiated because of considering some verdict of the Hon’ble SC, dampening the borrowers to delay the
settlement of debts and authorizing the banks or FIs to recuperate their debts promptly. To amend the
Act for these reasons, On November
11, 2004, “the enforcement of security interest and recovery of debt laws Ordinance, 2004”, was propagated. The main
highlights of the amendment were as following:
i. The Bank or FI needs to ponder any
objection elevated or presentation created
by the borrower and to communicate in writing about it within 1 week of acceptance of such a source of
communication to take over the security of the
borrower.
ii. The
borrower is enabled
to file an appeal before
the DRT after depositing a part of the due amount, as mentioned by them.
iii. DRTs are made to deposit and dispose
of application as quickly as possible and given a time bond
of 60 days to avoid delay.
iv. Pending applications can be transferred to any of the
DRTs in special cases.
v. Person distressed, by any instruction
given by the DRT, can file an appeal to the
vi. DRAT
after depositing 50% of the debt
due to the appellate tribunal.
vii. The
bank or FI can withdraw
the application with DRT to take action
under the Securitization Act, 2002.
Amendment Act 1 of 2013
This amendment provides for the
following, namely: -
i.
The borrower company can convert any part of debt into
shares, and this conversion shall be valid all time,
ii.
The Multi-State co-operative banks are included in the
bank’s description.
iii.
The FI or bank can respond to the borrower within 15
days’ stead of 7 days.
iv.
Empower the banks or FIs are empowered to take
possession of the immovable property from the defaulting borrower.
v.
Any person or bank can case a caveat to be heart by
DRT before granting any stay.
vi.
Record keeping of the transaction of reconstruction,
creation of security interest, or securitization in the central registry is
provided.
Amendment Act 44 of 2016
This amendment is projected to
enable investment leading to higher economic growth, suit charging credit, and development and augment ease of
doing business. And it includes:
i.
Registration and integration provision of the
registration system is made available to frame Central database, which contains
matters related to property rights’ security interest.
ii.
To cope up with changing the business environment, RBI
is provided powers to regulate ARCs.
iii.
The banks and FIs are got exempted from assignment
stamp duty of loan in favor of ARCs.
iv.
enabling the non-industrial investor to invest in
security receipts;
v.
Secured creditors are debenture trustees.
vi.
Secured Assets are provided with a specific timeline for
possession.
vii.
Secured creditors are given first importance to the
repayment of debts.
[1] Ajith, P. R. (2016). SARFAESI Act,
2002 - An Effective Tool for NPAs Recovery. International Journal of Management
and Social Science Research Review, 1(29) 220-224.
[2] Government of India, “The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest”,
Ordinance, New Delhi.
[3] Unny, Mukand.P. (2010). A Study on
the Effectiveness of Remedies Available For Banks in a Debt Recovery Tribunal -
A Case Study on Ernakulam DRT, Working Paper Series, Centre for Public Policy
Research, pp.1-35.
Article Information
INTERPLAY BETWEEN SARFAESI ACT AND NPA
Authors: K. AASHIKA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/11
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.