The Hindu Business Line : Who will have the last laugh?

THE first thing Mr Mardia, the promoter of the eponymous company Mardia Chemicals Ltd is reported to have done on hearing the Supreme Court verdict in Mardia Chemicals Ltd vs UOI (2004 59 CLA 380) was to rush to Tirupati to pay obeisance to Lord Venkateshwara for delivering him out of the financial bind he was in what with financial institutions, imbued with new vigour, snapping at his heels. He made no bones of his unabashed happiness over the turn of events before the Apex Court even as the beleaguered financial institutions sought to make light of the loss of the short-lived tool in their hands to fight the festering problem of non-performing assets (NPAs).

The Supreme Court while broadly upholding the constitutional validity of the nascent Parliamentary enactment, Securities and Reconstruction of Financial assets and Enforcement of Security Interest Act, 2002 (the Securitisation Act) struck down Section 17(2) thereof, which required pre-deposit of 75 per cent of the dues to the institutions if the borrower wanted to appeal against the notice of takeover of management or sale of mortgage assets, besides reading into Section 13 the time-tested legal principle audi alterem partem — hear the other side. It also incidentally took exception to the use of the word `appeal' in Section 17(2) inasmuch as the notice of threat of takeover or sale is not a judicial or quasi-judicial order. Compared to the striking down of Section 17(2), the other two adverse aspects of the Supreme Court verdict insofar as the respondent and the institutions are concerned, are just slap in the wrist. For, no one will seriously dispute the fact that section 13 suffered from the vice of steamrollering with a heavy hand without so much as affording an opportunity of being heard to the defaulter. No one will contest either the claim of the Supreme Court that for an appeal to be made there must be a judicial or quasi-judicial order — banks and institutions acting in terms of the new-fangled Section 13 are not judicial authorities. But the striking down of Section 17(2) is bound to rankle. For it reduces the power under Section 13 to nullity with borrowers bound to drag their feet and engage the harried institutions in a prolonged legal battle without paying up.

The argument that takeover of assets with one hand and demanding 75 per cent payment with the other amounts to hitting the defaulters below the belt, seems to have struck a chord with the Apex Court. To be sure, borrowers too need to be protected against the tyranny of lenders.

But then, such protection is in-built in Section 17(2) the proviso to which arms the Debt Recovery Tribunal with the power to waive or reduce the quantum of pre-deposit. It is humbly submitted that the Apex Court should have trusted the tribunals to use this discretionary power in appropriate cases in favour of the borrowers.

But the peremptory striking down of Section 17(2) has left the financial institutions high and dry. The financial institutions and by extension the problem of NPAs seem to be back to square one. For, the Debt Recovery Tribunal, to whom the appeal under Section 17(2) lies, is bound to stay the coercive proceedings against the defaulter. The Supreme Court while protecting the borrowers' interest seems to have introduced the element of `public policy' into the issue which it is respectfully submitted is entirely a private affair between the lender and the borrower.

It remains to be seen what the newly constituted government is going to do to give new set of teeth to the beleaguered institutions.

As it is, they won't be enthused at the prospect of going for the jugular. Because even if they did, they cannot go for the kill. Dubious company promoters have been bemoaning the death of the Sick Industrial Companies (Special Provisions) Act, 1985 on its repeal recently. But their sagging spirits will certainly receive a boost now that the Securitisation Act is but a scarecrow. The SICA granted stay against coercive proceedings against the properties of sick companies.

The Securitisation Act will now democratise this as it were because what was earlier the preserve of sick companies would now be available across the board to the entire tribe of defaulters, sick or healthy.

More Stories on : Accountancy | Non-Performing Assets | Courts/Legal Issues

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