More powers to lenders, asset salvage firms

Ordinance amending foreclosure law not clear on details

The government has stipulated that lenders could lease or sell assets of businesses taken over by them only if a substantial part was held as security.

The Ordinance amending the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has, however, not defined what constituted a "substantial part".

The Ordinance also empowered securitisation or asset reconstruction companies to take over the assets.

Elaborating on the powers of the Debt Recovery Tribunals (DRT) the Ordinance said such tribunals would examine whether the measures taken by the secured creditor for enforcement of security were in accordance with the provisions of the Act.

If the DRT concluded that the measures taken by the secured creditors were not as per the provisions, it could restore management of the asset to the borrower.

To strengthen the registration requirements of securitisation and reconstruction companies, the Ordinance has specified the need to comply with the guidelines issued by the Reserve Bank of India (RBI) for this purpose.

The Ordinance has also provided that any aggrieved borrower residing in Jammu and Kashmir could appeal to the high court within 30 days from the receipt of the order of a district judge.

As a measure of relief, the borrower was allowed to make representation to the lender but the rejection of such representation would not be a ground for making an application before the DRT.

The Ordinance has provided that the securitisation company form a trust for offering security receipts or raising funds. The securitisation company would manage the trust and hold the assets acquired or funds raised in the trust for the benefit of the qualified institutional buyer holding the security receipts or from whom the funds were raised.

The Ordinance has done away with the requirement to deposit 75 per cent of the debt claimed before the case was taken up by the DRT.

What the amended Act says

• Lenders can lease or sell assets of businesses taken over by them only if a substantial part was held as security
• But the Ordinance amending the Securitisation Act does not define what constitutes a 'substantial part'
• Securitisation or asset reconstruction firms can also take over the assets. Earlier, only the secured creditor could take over the assets
• Debt recovery tribunals to examine if the measures taken by the secured creditor are in accordance with the Act. If not, management of asset may be restored to the borrower