Sorabjee spells out seizure law safeguards

Attorney General Soli Sorabjee apprised the Supreme Court of the safeguards that could be introduced in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, to allay apprehensions about its harshness.

Sorabjee was arguing before a Bench headed by Chief Justice VN Khare, which began hearing the petition moved by Mardia Chemicals Ltd and a number of other companies against the Act. The companies are alleged to have defaulted in repaying their loans.

Sorabjee made some recommendations to dilute the severity of Section 13 of the Act, which allowed secured creditors to take over the assets of defaulting companies without the intervention of courts.

He said if the borrower disputed the liability specified in the notice, he should be allowed to make a representation to the creditor within 14 days of the receipt of the notice.

The creditor will then consider and dispose of such a representation within 60 days, including the period that the borrower took to file the representation. It shall also communicate its response to the borrower.

The representation will have to be considered and disposed at the level of chief manager or an equivalent rank for amounts up to Rs 10 crore.

If the amount demanded is more than Rs 10 crore, it will have to be considered by a committee of not less than three officers of and above the rank of chief manager. After communicating its response to the borrower, the secured creditor can then adopt further measures envisaged under the Act.

The Attorney General further submitted that according to Section 58 of the Transfer of Property Act, the mortgagee had only a right of redemption of the assets and property that was with the banks. Therefore, nothing was being taken away from the borrowers.

He also said that natural justice for the borrower did not include the right of appeal or personal hearing.

Senior counsel Harish Salve, representing a number of financial institutions, argued that secured creditors were "not waking up and grabbing the assets of the borrowers one fine day", as the companies challenging the Act had put it.

The hearing will resume on Thursday when the borrowers, led by Kapil Sibal, will reply to the creditors.