Highlights of the proposed amendments to RDDBFI Act & SARFAESI Act

judge gavel with money closeup

To read a detailed article on the amendments, click: Know all about the changes made by Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.

Background

The Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) were enacted for expeditious recovery of loans of banks and Financial Institutions (FIs).  However, due to various reasons, these laws were unable to give the desired outcome, resulting in the bad debts of Banks and FIs mounting day by day.  In order to facilitate quick disposal of recovery applications and thereby speed up the recovery process, Government has initiated steps to amend the RDDBFI and SARFAESI Acts and also to make consequential amendments to the India Stamp Act, 1899 and the Depositories Act, 1996.

Coming on the heels of the enactment of the Insolvency and Bankruptcy Code, 2016, these amendments aims to improve ease of doing business and facilitate investment leading to higher economic growth and development.

New Law

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 was passed by the Lok Sabha on 01.08.2016 and the Rajya Sabha on 09.08.2016. The President of India has given his assent on 12.08.2016 and the Act has been published in the Gazette of India for information on 16.08.2016. The date of coming into force of the Act is yet to be notified.

It seeks to amend four laws:

Amendments to the SARFAESI Act

The amendments in the SARFAESI Act, are proposed to suit changing credit landscape and augment ease of doing business which, inter alia, include:

  1. Registration of creation, modification and satisfaction of security interest by all secured creditors  and provision for integration of registration systems under different  laws relating  to property rights with the Central Registry;
  2. Creation of a central database to integrate records of property registered under various registration systems with the Central Registry. This includes integration of registrations made under Companies Act, 2013, Registration Act, 1908 and Motor Vehicles Act, 1988.
  3. Secured creditors will not be able to take possession of the secured assets unless  the secured assets are registered with the Central Registry;
  4. After registration of security interest with Central Registry , the secured creditors will have priority over others in repayment of dues;
  5. In addition to the existing powers of the Reserve Bank of India (RBI) to examine the statements and any information of Asset Reconstruction Companies (ARCs) related to their business, the amendment further empowers the RBI to carry out audit and inspection to regulate ARCs. The RBI may penalise an ARC if the company fails to comply with any directions issued by it;
  6. To enable non-institutional investors to invest in security receipts of ARCs;
  7.  Provide a specific timeline for taking possession of secured assets;
  8. Mandates that District Magistrates shall pass suitable orders in an application for assistance for taking possession of the secured assets, under Sec. 14, within 30 days from the date of the application; and
  9. In case the secured creditors have acquired controlling interest in the borrower company by converting part of its debt into shares of the borrower company, it shall not be necessary for the secured creditors to restore the business to the borrower.

Amendments to the RDDBFI Act

The amendments proposed in the RDDBFI Act, inter alia, include:

  1. Expeditious adjudication of recovery applications;
  2. Electronic filing of recovery applications, summons, documents and written statements;
  3. Priority to secured creditors in repayment of debts;
  4. Debenture trustees are also included in the definition of financial institutions, thereby enabling them to initiate action under the RDDBFI Act;
  5. Empowering the Central Government to provide for uniform procedural  rules for the conduct of proceedings in the Debts Recovery Tribunals and Appellate Tribunals;
  6. Increase in the retirement age of Presiding Officers of Debt Recovery Tribunals from 62 years to 65 years. Further, it increases the retirement age of Chairpersons of Appellate Tribunals from 65 years to 67 years. It also makes Presiding Officers and Chairpersons eligible for reappointment to their positions.
  7. Allows banks to file cases in Debts Recovery Tribunals having jurisdiction over the area of bank branch where the debt is pending, instead of filing cases in tribunals having jurisdiction over the defendant’s area of residence or business.

 Amendments to the Indian Stamp Act

The amendment provides for exemption from stamp duty on transactions undertaken for transfer of rights or interest in financial assets of banks or FIs in favour of ARCs. Financial assets include debts or receivables as defined in the SARFAESI Act.

Amendments to the Depositories Act

The  Depositories Act, 1996 is proposed to be amended for facilitating the transfer of shares held in pledge or on conversion of debt into shares, in favour of ARCs by banks or FIs.

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To read a detailed article on the amendments, click: Know all about the changes made by Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.

 

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About maheshspeak

I write randomly on law, jurisprudence, polity, travel, food and anything else interesting. You can also visit my personal homepage at maheshsreenivasan.com
Aside | This entry was posted in Banking, Commercial Laws, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

4 Responses to Highlights of the proposed amendments to RDDBFI Act & SARFAESI Act

  1. Jacob Oommen says:

    Congratulations for the efforts to mould the ready reckner for the general public. Keep it up……

    Like

  2. Anamika says:

    Like the write up. Very crisp and to the point

    Like

  3. Supriyo Gole says:

    As usual Mahesh speak. Very lucid

    Like

  4. Paras says:

    Very useful update…but CERSAI amendment if approved is going to create more issues for lenders…

    Like

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