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

The Lok Sabha on Monday passed the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, which seeks to amend four laws for expeditious recovery of bad loans by the banks.

Passed by voice note, the Bill seeks to amend SARFAESI Act, DRT Act, Indian Stamp Act and Depositories Act.

The bill empowers RBI to audit and inspect ARCs and the freedom to remove the chairman or any director and appoint central bank officials to its board. The central bank will be empowered to impose penalties for non-compliance with its directives, and regulate the fees charged by these companies to banks at the time of acquiring such assets.

The changes in the Sarfaesi Act reportedly allow secured creditors to take over a collateral against which a loan had been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days by the District Magistrate.

It further proposes to bring hire purchase and financial lease under the ambit of the Sarfaesi Act, and enable secured creditors to take over a company and restore its business on acquisition of controlling interest in the borrower company.

The Bill also empowers the District Magistrate to assist banks in taking over the management of a company in case the company is unable to repay loans. This will be done in case the banks convert their outstanding debt into equity shares and consequently hold 51 per cent or more in the company.

It proposes to amend the Indian Stamp Act to exempt deeds of assignment signed at the time of an ARC buying a loan from a bank from the levy of stamp duty.

Revamping the DRT mechanism, the Bill proposes electronic filing of recovery applications, documents and written statements. Making the process time bound, it prescribes a period of 60 days for the District Magistrate to clear an application by the creditor to take over possession of the collateral.

Responding to the discussion on the Bill, Finance Minister Arun Jaitley said that banks must be empowered to take effective legal action against defaulters and the recently enacted insolvency law, the current amendments to securitization law and DRT law would ensure fulfillment of that the objective. He however assured that the Banks would take a compassionate view on education loan defaults.

The law, he asserted, simplifies the procedure for quick disposal of pending cases of banks and financial institutions by the Debt Recovery Tribunal.

Read the bill here.