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Securitisation act may lose sting

New Delhi, Sept. 6: Two crucial provisions in the Securitisation and Reconstruction of Financial Interest and Enforcement of Security Interest Act, enabling banks and financial institutions to attach the personal property of a borrower, may undergo a drastic change with the Supreme Court staying the attachment of residential property of the owner of Amulet International.

A bench headed by Chief Justice V. . Khare has clearly indicated that sections 13 and 17 of the act needs to be “redrafted”.

Under section 13 (4), a bank or financial institution that has lent money to a company or any other person could attach the personal property of the borrower like his house, farm house etc.

The bank or the financial institution could even create third party interest by selling the company, firm or the business whose owner has borrowed money and take over the management also.

However, under section 17, the debt recovery tribunal (DRT) can award compensation to the affected party if it feels that the loss caused to the borrower was illegal. But then what came for debate before the apex court is that the DRT has no proper procedure and guidelines to award compensation.

Counsel for Amulet B. Devasekhar argued that once “even the personal property like a borrower’s residential premises is attached and sold or third party interest created, what would be the remedy available is not clear in the Act". Amulet owner Bhupinder Singh’s residential premises, K-43, Kailash Colony, New Delhi, was attached by the Punjab Sindh Bank (PSB) but was subsequently stayed by the apex court.

During the proceedings, the Chief Justice summoned attorney general Soli Sorabjee and told him that these two provisions of law required to be "redrafted". According to Devasekhar, “right to Life under article 21 would be infringed upon, if section 13 permits attachment of even residential accommodation of a borrower”.

In a letter to the attorney general, Devasekhar contended that “exemption of residential premises from the ambit of the securitisation act was mandated under the constitutional provision of ‘right to life’ under article 21 as well as under section 60 (1) ccc of the Civil Procedure Code which says residential property “is not liable for attachment as it is connected with ‘right to life’ of the owner or holder of such property".

Devasekhar also cited a judgement of the apex court in the Kiran Bala case in 1996 in which the apex court had exempted the residential premises from attachment under similar circumstances.

Various companies owe about Rs 80,000 crore to banks and financial institutions across the country. About 46 percentage of non-performing assets (NPA) are in the category of one lakh to one crore. The act does not apply to NPAs less than Rs 1 lakh.

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