Changes in recovery law to expedite disposal of 70k NPA cases

Far-reaching changes in the loan recovery law will help expedite disposal of over 70,000 pending cases involving more than Rs 5 lakh crore and ease the NPA situation, official sources said.
The amendment law, which received presidential assent on August 16, sets time limit for disposal of debt recovery cases and seeks to improve ease of doing business by ensuring speedier resolution of defaulted loans.
The highlights of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 are expansion of definition of security interest, inclusion of debenture trustees and strengthening of asset reconstruction companies (ARCs).

Besides, secured creditors like banks and financial institutions (FIs), ARCs and debenture trustees will get priority over any other dues, including taxation ones of central and state governments or any local bodies, the sources said.
Now, a district magistrate has to decide on applications by banks and FIs within a specific time limit of 30 days.
However, this period may be extended by another 30 days further in exceptional situations for reasons recorded.

The legislation provides stamp duty exemption on loans assigned by banks and financial institutions to asset reconstruction firms.
Around 70,000 cases involving more than Rs 5 lakh crore are pending in Debt Recovery Tribunals (DRT) and the proposed amendments will facilitate expeditious disposal of recovery applications.

The Act also proposes creation of a national database. Currently, security interests created in favour of banks and FIs are registered with the central registry CERSAI.
Now, all secured creditors and taxation authorities issuing attachment orders are enabled to register with CERSAI and this will help in creating a national database of encumbrances on property rights.
The Act, approved by Parliament earlier this month, amends four laws -- the Sarfaesi Act, the DRT Act, the Indian Stamp Act and the Depositories Act.
"So far, the laws were in favour of the defaulters. We tried to correct the balance. There should be firmness, coupled with fairness in recovery of loans," Finance Minister Arun Jaitley had said.

On DRTs, the Act provides specific powers to them to
decide applications filed by borrowers and third parties, including tenants, on the basis of guidelines issued by the apex court.
DRTs will have to dispose of a case in 180 days and the affected party will have to deposit 25 per cent of the amount if he or she chooses to appeal against the order.
With enactment of the law, they get power to hand defaulters jail term of up to 3 months in the case of non-compliance.
Recovery certificate issued by the presiding officer shall be deemed to be the decree or order of the court.

It also provides for activation of electronic-filing system. This will enable people to get any information about status of their application, cause list, order and recovery certificates from anywhere through the website of a tribunal and appellate tribunals.
However, the option of physical filing of cases will continue until the government prescribes exclusive electronic filing.
The retirement age of presiding officers has been raised to 65 years from 62 while for the chairperson of an appellate tribunal, it has gone up to 70 years from 65.
The law also provides provision for reappointment of a presiding officer and chairperson. There is also provision for entrusting additional charge of the tribunal and appellate tribunals to any other equivalent judicial officer of any other tribunal.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, however, applies to loans for agricultural land as well as student loans.