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Lenders ready to sting dodgers with Ordinance

Mumbai, Sept. 8: Legal eagles have told banks and financial institutions led by the Industrial Development Bank of India (IDBI) that loan dodgers can be dealt with under the new Ordinance even if a suit for recovery of arrears is already before courts or tribunals.

The advice shreds legal arguments from borrowers that lenders cannot use other legal options — the Ordinance for instance — to recover dues since the case is being examined by the high court or debt recovery agencies.

Senior bank officials told The Telegraph that IDBI, which is co-ordinating efforts on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, will apprise lenders about the legal position later this month.

“We have received indications from IDBI that a provision in the Ordinance empowers FIs and banks to take action against errant firms being tackled in courts,” said a senior official of a nationalised bank that has slapped more than 200 notices on defaulting companies.

IDBI has taken the initiative in building a consensus among banks and institutions ever since the Ordinance was signed into law. Over the last two months, it organised two meetings, where the focus was on consortium loans which have now turned sticky.

At another meeting later this month, efforts to reach a general agreement will be renewed ahead of October, when the 60-day notice period given to borrowers will end. Several lenders will decide how to ferret out their money, and some could pull the trigger.

Under the Ordinance, banks can either sell the assets of an errant company or change its management 60 days after they send pay-up notices.

The decision must be backed by 75 per cent of lenders, in terms of value.

Even as lenders step up the ante, borrowers have contended that there should be a difference in the treatment of those who do not want to clear dues, and those who can’t — a normative distinction hard to define under the law.

The Ordinance allows companies to contest enforcement by depositing 75 per cent of dues with a debt recovery tribunal, but borrowers have argued that most of them may be unable to deposit this amount.

A few have even moved the court against the Ordinance. There are reports of Mardia Chemicals Ltd lodging a petition in the Delhi high court, challenging notices issued by banks and FIs under the Ordinance.

The Ordinance permits setting up of asset reconstruction companies. Here too, several issues relating to valuation of assets for transfer to these companies, provisioning requirements after transfer of ownership, interest and other issues have to be clarified.

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