Financial Daily from THE HINDU group of publications
Tuesday, Jun 01, 2004
Financial Daily from THE HINDU group of publications Tuesday, Jun 01, 2004 |
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Money & Banking
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Securitisation Upfront payment by defaulters — Banks to seek review of SC order Sarbajeet K. Sen
New Delhi , May 31 THE last word may not have been heard on the tussle between lenders and borrowers over the Securitisation Act. The banking sector is set to approach the Ministry of Finance asking it to seek a limited review of the recent Supreme Court order on upfront payment by defaulting borrowers. The order had struck down the provision requiring defaulting borrowers to make an upfront payment of 75 per cent of the disputed amount before appealing against action initiated by lenders under the Act. According to highly-placed banking sources, the lenders' view is likely to be articulated to the Finance Ministry through the Indian Banks' Association (IBA), which represents the interests of bank managements in the country. Preliminary discussions have been held among top bankers on this. "Something is going to happen on this (seeking a review of the SC order) soon. We feel that the upfront need not be 75 per cent, but can be fixed at a lower level that is considered reasonable by the Court. We would like to move through the IBA," the Chairman and Managing Director of a premier public sector bank said. Bankers said that scrapping the need to make an upfront payment would only flood the appeals court - the Debt Recovery Tribunals in this case - with petitions against action taken by lenders to recover dues. "Virtually every case will land up in the appeals court whether there is substance in the appeal or not. If the appellate court is flooded, then it would automatically lead to delays in getting back the dues," a banker said. He said that since the Union Government was the principal respondent to several disputes initiated in various courts over the Securitisation Act, the Ministry of Finance had to initiate any appeal against the Supreme Court order. The apex court had clubbed all petitions challenging the validity of the Act, while passing its judgement in early April. While upholding its validity, the court in its judgement, held that the requirement of making an upfront payment was "an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down." The Securitisation Act (the full name being - The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) allows lenders to initiate action outside the court to take possession and sell assets of defaulters after giving notice and sixty days time for the borrower to pay up the dues or give a satisfactory explanation for not doing so.
More Stories on : Securitisation | Non-Performing Assets
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