Two Key Ammendments in Dec 12 for Helping in Recovery

Key amendments to recovery laws such as restricting the number of adjournments that defaulting borrowers can seek in the Debt Recovery Tribunal are likely to help banks to step up their bad loans recovery drive.

Another amendment allows banks to purchase collateral (pledged with the bank by a defaulter-borrower) at the reserve price in case no party comes forward to bid at the auction.

With the Finance Ministry asking banks to intensify their bad loan recovery efforts, the above mentioned amendments, which were carried out in December 2012, are expected to come in handy, say bankers.

Under the amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, a Tribunal can grant adjournments if sufficient cause is shown.

But such adjournment can be granted no more than three times to a party and where there are three or more parties, the total number of adjournments cannot exceed six.

According to M.R. Umarji, Chief Legal Adviser, Indian Banks’ Association, due to the adjournments given by the Debt Recovery Tribunals (DRTs), banks were facing long delays in getting orders for recovery.

So, to restrict the adjournments given by the DRTs, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, has been amended.

“This provision (restriction on adjournments) is already there in the Civil Procedure Code. When the amendments were made in the Civil Procedure Code, the lawyers went on strike. “There were objections to that amendment, which was made to ensure that the delays in our system are curtailed and justice is given expeditiously,” said Umarji. 

Facing hurdles

Before the amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, banks were facing hurdles in selling the collateral/security of influential defaulter-borrowers as the latter ensured that no local party bid for their assets at the auction.

However, after amendment to the Sarfaesi Act, which was also carried out in December 2012, the above mentioned manipulation has been taken care of as banks can themselves purchase the collateral/security at the reserve price in case no bidder comes forward. “Prior to the amendment, there were cases whereby banks took possession of securities under the Sarfaesi Act and put them up for auction. But the auction failed as nobody came forward to purchase the securities.

“Banks repeated the exercise again but the outcome was no different. In many cases, the borrowers are able to spread the word around that this is my property, so nobody should bid and purchase it. Locally, they (borrowers) are powerful,” said Umarji.

Now, under the amended Sarfaesi Act, if the public auction to sell the property fails, the bank itself can purchase it at the reserve price and recover the debt to the extent of the reserve price.