Borrowers may have to deposit 75% of debt before appeal

MUMBAI: The finance ministry is considering a proposal to amend the new recovery Act, which, if approved, will leave little room for the borrower to enter into a long drawn court feud with the lender.

The ministry is examining the possibility of making it mandatory on a defaulting borrower to deposit 75% of its outstanding debt if it intends to make an appeal in the Debt Recovery Appellate Tribunal (DRAT), challenging the lender.

Following the apex court ruling on the Mardia Chemicals verses ICICI Bank case, several borrowers, whose assets were attached by banks, rushed to the DRT for a stay on the assets sale. This was a setback to banks, who have now urged the finance minister to review the new recovery law — Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act. The law empowers banks to attach and sell assets pledged with them in case of a default.

In the Mardia Chemicals verses ICICI Bank case, the apex court dropped Section 17 (2) of the Act that made it mandatory for a borrower to deposit up to 75% of outstanding loans with the DRT before making an appeal. u Related report on P 6

The apex court had ruled that if the outstanding amount itself was in dispute, it was difficult to decide on the deposit amount. Secondly, the court observed that a borrower should be given an opportunity to present its case before the judge.

Bankers have now proposed the amendment on two grounds: first, the borrower has an opportunity to present its case before the DRT and secondly, if the outstanding amount is in dispute, the DRT could decide on it.

Currently, a borrower can approach the DRT, and if it rejects the appeal, it can go to the DRAT. If the appellate also turns it down, the borrower can go to the High Court and subsequently to the Supreme Court. This, in order words, would only prolong the case and deteriorate the quality of pledged assets.

Banks have asked the finance ministry if they could file a review petition with the Supreme Court on its recent ruling. They have proposed that it should be made mandatory for the borrowers to deposit at least 25% of deposits so that only genuine borrowers would approach the DRT.