New Delhi, Nov. 29: Corporate loan defaulters who are being hounded by banks to pay back their long overdue loans or face penal proceedings today won some respite when the Supreme Court ruled that the stay on debt recovery procedures would continue.
The stay had been issued on the Securitisation Ordinance that had been passed by the government soon after the monsoon session; but on Tuesday, Parliament passed the Securitisation Bill into law which allows banks to press for seizure of assets of defaulting companies in order to recover the dues.
An apex court bench comprising Justices V. N. Khare and Ashok Bhan ruled that the stay on debt recovery procedures would continue. The ruling came after counsel for the Amulet International Pvt. Ltd. Deva Shekhar pointed out to the court that Parliament had enacted the securitisation law. The judges observed, “Let the President give his assent to the Bill passed by Parliament as Act. Till then our stay will continue.” Technically, till the President gives his assent to a Bill passed in Parliament, it will not come into effect as an Act.
Justice Khare even observed that “more petitions could be filed” so that the apex court could go into the constitutionality of the Act.
The Act allows financial institutions and banks to press for the takeover of the management of defaulting companies and even create third party rights by selling the industrial/business units to third parties.
The apex court has stayed the creation of third party rights after Deva Shekhar contended that “irreparable loss” would be suffered by industries which might be able to pay back the loan at a latter stage. Once a third party has taken over the management, it would not be possible for such industries to regain control over their lost units.
Industries/business houses across the country owe an estimated Rs.74,000 crore in bad debts.
The government brought an ordinance which then was converted into a Bill and passed by Parliament a couple of days back as an Act.