Author Name:   ranganathvg@legalserviceindia.com

The Bank and Financial Institutions should exercise Caution while dealing with running units of the borrowers. Law has no Color. A single wrong step can cause damage not only to the unit of the borrower but can also remedy many families who are dependent on the unit to face hunger for quite some time. The workers may not get the salary for quite some time. Also taking over the unit is the beginning if an exercise which may materialize over a period of time. Banks should, therefore, not be in a hurry. They can always take the possession of unit under the Act.

Implications to Securitization Act

1. The Author suggests that the banker has got power conferred upon them for the first time under this SARFAESI Act. This kind of power should take every opportunity to reduce their NPA’s and should act with due diligence and take a considered decision and should review each and every case on its merit. The Author suggests that the notice under the Act should be sent to the chronic and the hardcore NPA holders and should not be sent to all the defaulters who might have attained the status of ‘defaulter’ under the Act but have been their good client otherwise.

2. The Author suggests the banks should immediately get a list of defaulters complied by the various branches and should ask the branch manager to identify the accounts which have a potential of being a non-NPA account in the near future and the default are mere temporary in nature. RBI may not help the Banks in these matters. This will save them of initiating proceedings against all the defaulters. The idea should be to increase the recovery but not at the cost of the borrower who has the NPA account for some reasons beyond control. The opportunity should be utilized to get rid of the hardcore, chronic and the wilful defaulters. The intention of the legislature is not to shut down the industry.

3.The Author suggests that IBA should convene a meeting every week of all heads of the Banks where the results taken should be reviewed and the matter regarding the ‘border line’ cases should be reviewed in case of consortium advance.

4. The Author suggests that the banks should not be over anxious to take over the possession of the assets or the management of all the defaulters. The branches of banks are neither equipped nor have the experience in the matter of taking over the units. It will keep them saved of the litigation which is likely to flow in case the assets are taken over without getting them valued and without giving a chance to the borrower to process the semi finished stock so that the same can be sold. The Banks may cause more damage than the amount, which they anticipate to recover by indulging in discriminate practice.

5. The Author suggests the bank should get its staff trained and as a measure to get a first hand exposure it should depute its staff to some of the SFC and let it officers have first hand knowledge as to how to deal with the situation. It should be remembered that the Banks are not the first who will try the formula of taking over the physical possession. The disposal of assets and the recovery of the shortfall are more important areas.

6. The Author suggests that the legal staff of the Banks should be trained as they may have to interact with the State Civil administration and the Police. These should be ready face the hostile situations sometimes.

7. The Author suggests that the Bank and Financial Institutions should exercise Caution while dealing with running units of the borrowers. Law has no Color. A single wrong step can cause damage not only to the unit of the borrower but can also remedy many families who are dependent on the unit to face hunger for quite some time. The workers may not get the salary for quite some time. Also taking over the unit is the beginning if an exercise which may materialize over a period of time. Banks should, therefore, not be in a hurry. They can always take the possession of unit under the Act.

8. The Author suggests that the principles of natural justice to be followed at every stage by bank and financial institutions.

9. The Author suggests that in matter of consortium advances, it should be ensured that the actions are taken in consortium advance as per the provisions of the Act. Three fourth of the majority should be agreeable to take the steps for the enforcement of security.

10. There is a need of appointment of a committee by the Government as a working group by the RBI for the study of Law relating to SARFAESI Act and to review the earlier recommendations given by the committees on the subject.

11. The Government has to consider the request of reducing the court fee for Application i.e filing appeal valued less than Rs. 10,00,000/- cases under SARFAESI Act.

12. The application fee paid by the debtor is to be repaid in case of settlement of disputes out of the court, such as Lok Adalat compromises, One Time Settlement Schemes.

13. The Government of India has to consider the framing of rules relating to the qualifications and eligibility conditions for the post of Recovery Officer, Authorised Agent, Officer of Securitisation Company and Reconstruction Company. Futher suggestion in this connection is that the degree of law is to be a compulsory qualification for these posts and on eligibility condition of three years legal practice for the post of Authorised officer of Bank or Financial Institution.

14. The conducting of refresher training course is required for the staff of Banking, Financial Institution, Securitisation Company and Reconstruction Company for the improvement of technical skills in doing ministerial work for the effective recovery.

15. The Government may frame rules and regulations in order to speedy disposal of cases and to publish the list of the defaulters against whom notices or certificates are issued twice in a financial year.

16. The Author suggests that it would be necessary to find ways to encourage people to participate in the auction sale and pay the market price of the same, as against understood as the white amount.

17. The Author suggests, it may necessary to amend the property tax laws and discount on the income tax for the auction purchaser.

18. The Commission has to work out to suggest viable ways to effectively recover the dues of Banks and Financial Institutions.

19. The borrowers may raise frivolous ground of objections only to buy some time. The Author feels this requirement would not create any obstacle in the long run in the recovery process. In most cases where banks and financial institutions have sent notices they have solid grounds for initiating action for recovery. In most cases, there should be no problem in providing explanation for overruling the objections raised by the borrower or defaulter.

20. The Author suggests the Banks and Financial Institutions have to place an undated list of recovery agents on their websites and conduct periodical verification of the antecedents of employees of recovery agents, which may include verification through police.

21. The Author suggests that the current available laws like Income tax rules and Code of CPC are outdated and do not contemplate the problems faced today. So there should be an amendment of pertaining rules and provisions to be amended to suit the needs of the present day scenario.

22. The Author suggests that the Banks and Financial Institutions are getting succeeded in capturing small fishes, sharks are still large.

23. According to Sec.17 of the Act, the borrower or Bank or Financial Institution or any aggrieved may approach DRT in the form of appeal by paying required fees. The Hon’ble Supreme Court in Mardia Chemicals V The Union of India striked down the condition for deposit as ultravires of the constitution. The Author suggests that at least there should be 25% of the deposit of due claimed by secured creditor. It may reduce the unnecessary litigation and dragging on the time through way of appeal.

24. The Author suggests/feels that, according to Sec.13 (3A), the requirement of communicating reply to the objecting borrower might appear to be innocuous one but it has a potential to create a major head ache.

References:
1.DR.R.G.Chaturvedi-Law of practice of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Law, Bharat Law publications, Jaipur, 2005.
2. R.Swaroop-Short Commentary on Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, ALD publications, Hyderabad, 2006.
3. R.C.Kohli-Practical Approach to Recovery Management in Banks and Financial Institutions and Securitisation Act.
4. M.Rama Jois- Legal and Constitutional History of India-Vol.1
5. Bharat’s Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
6. Vinod Kothari- Securitisation, Reconstruction and Enforcement of Security Interests.
7. Taxmann- Hand Book on Debt Recovery
8. Mamillan- International Banking Operations.

# The Author is V.G.Ranganath, Faculty Member, Faculty of Law, IFHE University(ICFAI),Hyderabad and Research Scholar(part-time), Dr.B.R.Ambedkar College of Law, Andhra University, Visakhapatnam.

The  author can be reached at: ranganathvg@legalserviceindia.com

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