Debt Recovery to be on Fast Track

The Government has paved way, with a formal approval on 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.

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.

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 is aimed at improving the ease of doing business and facilitate investment leading to higher economic growth and development.

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.

2nd August, 2016

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