Govt may plug gaps in Securitisation Act

NEW DELHI: Lenders who got a rude shock when the Debt Recovery Tribunal (DRT) stayed ICICI Bank’s action against Mardia Chemicals earlier this month can now breathe easy. The government is considering amendments to the Securitisation Act to plug loopholes in the existing legislation. Parallely, the Debt Recovery Tribunal Act would also be amended.
While upholding the constitutional validity of the Act in April this year, the Supreme Court had also ruled that borrowers would not be required to deposit any money before filing an appeal in the Debt Recovery Tribunal (DRT). The Act requires borrowers to deposit 75% of the amount in default before appealing.
Following the apex court ruling, Mardia Chemicals promptly filed an appeal with DRT. The tribunal stayed the bank’s action in an ex-parte decree awarded in June. The net result is that the very purpose of the Securitisation Act — to expedite recovery of non-performing assets — was defeated. Understandably, bankers were upset at this turn of events. It seemed as if their worst fears of borrowers filing frivolous appeals were coming true.
During the FM’s visit to Mumbai, the matter was taken up with Mr Chidambaram who promised a re-look at the Act. He is likely to deliver on his promise in the Budget itself.
One possibility, said senior bankers, is that borrowers could be asked to deposit a lower amount before going in appeal. This would reduce the scope for frivolous complaints without burdening borrowers excessively.
But borrowers need not fear that the dice will be loaded against them. The government is also considering amending the DRT Act. The idea, perhaps, is to strengthen the DRT machinery and stipulate a definite time-limit within which all cases must be disposed of. Today, the administrative infrastructure of DRTs is woefully inadequate. Consequently DRTs no longer fulfil the basic purpose for which they were intended — to serve as fast-track courts for handling NPAs. The government, given its penchant for keeping both sides – borrowers and lenders – happy is therefore likely to announce its intention to amend both Acts in the forthcoming Budget.