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Sarbajeet K. Sen

New Delhi , June 8

LENDERS will have to continue to package their bad debt recovery effort within the legal limitation period. This follows the Finance Ministry ruling out the possibility of allowing them to initiate simultaneous proceedings before the Debt Recovery Tribunals (DRT) while taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Securitisation Act).

The Ministry has argued that as DRTs are also the forums for adjudication between borrowers and secured lenders for action taken under the Securitisation Act, it would not be possible to accede to the plea of the lenders to allow simultaneous proceedings.

The Securitisation Act provides that borrowers aggrieved by the lenders' action under the Act can approach the DRTs for relief.

Lenders had earlier pointed out to the Ministry that the legal requirement of withdrawing DRT cases before initiating action against a borrower under the Securitisation Act threatens a large number of recovery cases that may get time-barred for any further action before the Tribunals.

They had argued that there was a danger that once the cases are withdrawn from the DRTs, the lenders may not be able to approach the same forum for recovery of balance dues since the loan document might get time-barred by the time action under the Securitisation Act is completed.

Under the present laws, a case before the DRT gets time-barred three years from the date the loan becomes sub-standard. This, in effect, means that the case has to be initiated before the expiry of the period.

The Securitisation Act permits secured creditors to take possession of assets or even take over the management of companies of defaulters after providing the borrower the requisite time to settle his dues. However, the DRTs are tribunals that the lenders can also approach for recovery of bad debts of all kinds.

"There are conflicting opinions even from the DRTs on the matter. We wanted some clarity but, as it appears, the Government is not inclined to allow this," a top banker said.

The Finance Ministry feels cases getting time-barred before the DRTs are a "transitory problem" which would be sorted out once the banks get used to sequencing the processes.

Stating that three years "is too long a period" for banks to complete proceedings under the Securitisation Act, the Ministry has said that there should be enough time to approach the DRTs to recover other dues.

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