| Kalam: Signature stroke
New Delhi, Dec. 24: The President has given his assent to the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002, the government said in a statement today.
The President’s approval will now automatically lift a stay ordered by the Supreme Court that precluded banks from creating third party interest in assets they had seized from corporate loan defaulters.
The banks have been initiating debt recovery proceedings against the wilful defaulters by seizing their assets and moving to auction them to recover the dues. The apex court stay prevented them from auctioning these assets.
In late November, a two-member bench comprising Justice V. N. Khare and Ashok Bhan had said: “The stay will continue till the President gives his assent to the Bill, passed by parliament as an Act.”
The bench had ordered a stay on the grounds that “there was no measure of control on the price at which the assets of the borrower will be sold”. Also, it was contested that “irreparable loss” would be suffered by industries which might be able to pay back the loan at a later stage.
With the President’s assent, defaulters will lose the right to appeal to the ‘courts-of-law’ against takeover of their assets by the lender-banks or financial institutions (FIs). The Act allows banks to seize and sell property belonging to the defaulters without getting mired in courts of law.
“The Bill will now become an Act of the Gazette of India...this Act shall have overriding power over all other laws,” the government statement said.
The Indian banking system is currently in the throes of a crisis because some Rs 74,000 crore of loans doled out have turned sour. It is this sad fact that had prompted the government to come out with a law allowing banks to seize property against unpaid debt.
Bankers said the debt recovery process would help the banks to reduce the banks’ non-performing assets as well as boost profits.