Section 081 in The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002
081.
Statement of Objects and Reasons.-The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.2. It is now proposed to replace the Ordinance by a Bill, which, inter alia, contains provisions of the Ordinance to provide for-(a) registration and regulation of [asset reconstruction company] by the Reserve Bank of India;(b) facilitating securitisation of financial assets of banks and financial institutions with or without the benefit of underlying securities;(c) facilitating easy transferability of financial assets by the [asset reconstruction company] to acquire financial assets of banks and financial institutions by issue of debentures or bonds or any other security in the nature of a debenture;(d) empowering [asset reconstruction company] to raise funds by issue of security receipts to [qualified buyers];(e) facilitating reconstruction of financial assets acquired by exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions;(f) declaration of any [asset reconstruction company] registered with the Reserve Bank of India as a public financial institution for the purpose of section 4-A of the Companies Act, 1956;(g) defining "security interest" as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution;(h) empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e., classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time;(i) the rights of a secured creditor to be exercised by one or more of its officers authorised in this behalf in accordance with the rules made by the Central Government;(j) an appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal;(k) setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration of transactions relating to securitisation, asset reconstruction and creaiion of security interest;(l) application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other entities;(m) non-application of the proposed legislation to security interests in agricultural lands, loans not exceeding rupees one lakh and cases where eighty per cent. of the loans are repaid by the borrower.Amendment Act 30 of 2004-Statement of Objects and Reasons.-The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected thereto. The Act enables the banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mis-match and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured assets and take over the management of the business of the borrower.2. The Hon'ble Supreme Court, in the case of Mardia Chemicals Ltd. v. Union of India A.I.R. 2004 S.C. 2371: (2004) 4 S.C.C. 311, inter alia,(a) upheld the validity of the provisions of the said Act except that of sub-section (2) of section 17 which was declared ultra vires article 14 of the Constitution. The said sub-section provides for deposit of seventy-five per cent. of the amount claimed before entertaining an appeal (petition) by the Debts Recovery Tribunal (DRT) under section 17;(b) observed that in cases where a secured creditor has taken action under sub-section (4) of section 13 of the said Act, it would be open to borrowers to file appeals under section 17 of the Act within the limitation as prescribed therefor. It also observed that if the borrower, after service of notice under sub-section (2) of section 13 of the said Act, raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief that may be, must be communicated to the borrower. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under section 17 of the Act, at that stage.3. In view of the above judgment of the Hon'ble Supreme Court and also to discourage the borrowers to postpone the repayment of their dues and also enable the secured creditor to speedily recover their debts, if required, by enforcement of security or other measures specified in sub-section (4) of section 13 of the said Act, it had become necessary to amend the provisions of the said Act.4. Since the Parliament was not in session and it was necessary to take immediate action to amend the said Act for the above reasons, the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004 was promulgated on the 11th November, 2004.5. The said Ordinance amends the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Companies Act, 1956. Chapter II of the Ordinance which amends the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,-(a) require the secured creditor to consider, in response to the notice issued by the secured creditor under sub-section (2) of section 13 of the said Act, any representation made or objection raised by the borrower and cast an obligation upon the secured creditor to communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower and take possession of the secured asset only after reasons for not accepting the objections of the borrower have been communicated to him in writing;(b) enable the borrower to make an application before the Debts Recovery Tribunal without making any deposit (instead of filing an appeal before the Debts Recovery Tribunal after depositing seventy-five per cent. of the amount claimed with the notice by the secured creditor);(c) provides that the Debts Recovery Tribunal shall dispose of the application as expeditiously as possible and dispose of such application within sixty days from the date of such applications so that the total period of pendency of the application with such Tribunal shall not exceed four months;(d) make provision for transfer of pending applications to any one of the Debts Recovery Tribunal in certain cases;(e) enables any person aggrieved by any order made by the Debts Recovery Tribunal to file an appeal to the Debts Recovery Appellate Tribunal after depositing with the Appellate Tribunal fifty per cent. of amount of debt due from him, as claimed by the secured creditor or determined by the Debts Recovery Tribunal, whichever is less;(f) enables the borrower residing in the State of Jammu and Kashmir to make an application to the Court of District Judge in that State having jurisdiction over the borrower and make provision for filing an appeal to the High Court from the order of the Court of District Judge;(g) makes provision for validation of the fees levied under the said Act before the commencement of this Ordinance.6. Chapter III of the Ordinance amends the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 so as to enable the bank or financial institution to withdraw, with the permission of the Debts Recovery Tribunal, the application made to it and thereafter take action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.7. Chapter IV of the Ordinance amends the Companies Act, 1956 so as to provide that any reference made under section 424-A of that Act shall abate if the secured creditors representing three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.8. The Bill seeks to replace the aforesaid Ordinance.[17th December, 2002]...[An Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights, and for matters connected therewith or incidental thereto.] [Substituted by Act No. 44 of 2016.]Be it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:
