Financial Daily from THE HINDU group of publications
Friday, Apr 09, 2004
Money & Banking - Non-Performing Assets
Industry & Economy - Courts/Legal Issues
Securitisation Act needs a lot more fine-tuning: India Inc
New Delhi , April 8
THE Supreme Court's decision on the Securitisation Act has received mixed response from corporate sector.
While welcoming the Court's decision to strike down the provision in the Act, which made it mandatory for the companies to deposit 75 per cent of the defaulting amount with the court if they preferred an appeal against the order attaching their assets, India Inc has said that the Act needs to be further fine-tuned.
According to the PHD Chamber of Commerce and Industry (PHDCCI), the Court's decision on Section 17(2) will be a big relief to the borrowers.
"This is a very stiff clause and its removal will create a level playing field for borrowers and lenders," said Mr Ravi Wig, President.
"If the borrower had the ability to pay 75 per cent, there would have been unlikelihood of default in the first place."
However, he added: "The Act needs to be further fine-tuned."
Mr Wig also said that the section relating to the enforcement of security interest, under which secured creditors are empowered to take over management of the defaulting companies or take possession of the mortgage assets of loan defaulters if deemed necessary, is a retrograde one.
"This clause is loaded in favour of lenders and needs to be relooked at, as there is every possibility that its implementation may convert productivity assets of the company into NPAs."
The Associated Chambers of Commerce and Industry of India (Assocham) has stated that the Court has not addressed the substantial issue of importance to industry, which will cause hardship to borrowers who are unable to pay due to reasons beyond their control.
However, it welcomed the Court's declaration of Sub-Section 2 of the Section 17 as `unconstitutional'.
In a statement, Assocham said that since beginning it had been of the opinion that the Securitisation Act was highly discriminatory towards borrowers.
"It makes no distinction between intentional defaulters and those unable to pay due to reasons beyond their control. It is a well-known fact that industrial sectors pass through phases of growth and decline."
India Inc has been strongly stressing the need for providing relief to borrowers defaulting due to reasons beyond their control.
"What is heartening is that the apex Court has struck Section 17(2)," said Mr Y.K. Modi, President of FICCI.
The CII President, Mr Anand Mahindra, said: "The Supreme Court has taken forward the cause of reforms in India's bankruptcy laws by upholding the validity of the Securitisation Act."
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