Enforcement of Security and Recovery of Debt Bill 2016

In a move to expedite the process of resolving the debt issues burdening the creditors including banks and financial institutions, Finance Minister Arun Jaitley introduced the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in the Lok Sabha.

Coming on the heels of the Insolvency and Bankruptcy Code, 2016, this Bill seeks to further amend four legislations –

1. the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002

2. the Recovery of Debts due to Banks and Financial Institutions Act, 1993

3. the Indian Stamp Act, 1899

4. the Depositories Act, 1996

The Bill now has been referred to a Joint Committee of Parliament. The Committee will consist of 30 members – 20 from the Lok Sabha and 10 from the Rajya Sabha.

Jaitley had in the Union Budget 2016-17 proposed to amend the Sarfaesi Act to enable the sponsor of an ARC to hold up to 100 per cent stake in the Asset Reconstruction Company and permit non-institutional investors to invest in Securitisation Receipts.

He had also announced strengthening Debt Recovery Tribunals (DRTs) and computerised processing of cases to expedite resolution of stressed assets. This Bill will address both these issues.

Once passed it will help banks that are facing over ₹8 lakh crore of stressed assets recover bad loans faster.

The Bill proposes to empower the Reserve Bank of India to regulate ARCs, give priority to secured creditors in repayment of debts and provide stamp duty exemption on loans taken over from banks and financial institutions.

Noting that cases were pending for many years due to adjournments and prolonged hearings though existing laws provide for a period of 180 days for a disposal of recovery applications, the Bill’s Statement of Objects and Reasons said it will “facilitate expeditious disposal of recovery applications”.

It has changed the nomenclature of securitisation and reconstruction company to ARC and has also changed the criteria of sponsor of the ARC as “fit and proper” as against the current provision that sponsors can not have stake in these firms.

It also seeks to enable non-institutional buyers besides qualified institutional buyers for investment in security receipts.

To give existing and potential creditors, a better picture of assets, the Bill also seeks to integrate records on property rights in various registration systems with the records of the Central registry and set up a Central database of security interest on property rights.

To fast track disposal of cases, it has called for online filing of applications as well as upload of all rulings. Significantly, to ensure the creditor’s interest, the Bill also empowers the Debt Recovery Tribunals to issue a summon within 30 days of an application, directing the defendant to disclose the particulars of properties and assets and also pass an interim ex-parte order restraining the defendant from disposing them.

The defendant will also be expected to deposit at least 25 per cent of the debt due while filing for an appeal.

Experts welcomed the Bill but said how it is rolled out will be crucial. Measures such as priority to secured creditors in repayment of debts and more powers to DRTs will help in faster disposal of cases. It is a commendable effort but it will all boil down to implementation.