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The Joint Committee of Parliament on the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill on Friday submitted its report to the Lok Sabha recommending significant changes in the proposed legislation including harmonising it with the Insolvency and Bankruptcy Code for payment to secured creditors.
“…on and after the commencement of the Insolvency and Bankruptcy Code 2016, in cases where insolvency and bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code,” said the report.
The Committee headed by BJP MP Bhupendra Yadav has recommended nearly two dozen amendments to the Bill in the report, which was tabled in Parliament in May this year. The Finance Ministry is hopeful that the Bill will be passed in the current session of Parliament and help improve the ‘ease of doing business’ by faster resolution of bad loans.
In view of the previous Supreme Court judgment and tenancy protection laws in various States, the Committee has also suggested specifying cases where Debt Recovery Tribunals (DRTs) can pass orders permitting the banks to take action for enforcement of securities under section 17.
Disposing of assets Further, it has proposed doing away with the provision to empower Tribunals to give an interim ex-parte order to prevent disposing of the assets within 30 days of a show-cause notice to the defendant as it “may be a violation of the principles of natural justice”. Instead, it has suggested giving “adequate opportunity” to the borrower before an adverse adjudicatory stance is taken against him.
It has also suggested reviewing the definitions of a number of terms including “intangible assets” to include those that may be “prescribed by the Central Government in consultation with the Reserve Bank of India”.
“Lending against security of intangible assets is evolving and with a view to empower Central Government to specify the type of intangible assets from time to time,”, it said, adding that modes of recovery of such assets can also be prescribed by the Central government from time to time.
Similarly, it has also recommended amendments to the definition of “asset reconstruction company” (ARC) and “secured creditor”.
It has also suggested tightening the provision for exemption from stamp duty for acquiring financial assets by ARCs to prevent its misuse for other purposes.
To keep a check on ARCs, it has also proposed empowering the RBI to carry out their audit and inspection them from time to time.
It has also suggested authorising a judicial member in the Debt Recovery Tribunals (DRTs) to function as the presiding officer and increasing the maximum age of the chairpersons of Appellate Tribunal to 70 years.
“Though the IBC had brought in amendments under section 13 (9) of the SARFAESI Act, by introduction of 26 E in the Act through the Bill much needed clarity that such priority to secured creditors should be subject to provisions under IBC, like power to declare moratorium etc., is brought in by the Joint Committee by way of an explanation thereby harmonizing the Act and the Code,” said Babu Sivaprakasam, Partner, Economic Laws Practice.
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