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MUMBAI, JUNE 24: The Indian Bank?s Association (IBA) has
appealed to the Union ministry of finance (MoF) to amend the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (Sarfaesi) for the purpose of deleting sub-section two of section 17,
which has been declared invalid by the apex court. The apex court has struck
down the provision of 17 (2) that required borrowers to deposit 75 per cent of
the amount claimed by lenders before they could file appeals with debt recovery
tribunals. IBA has also sought ministry nod for
filing a review petition against the Supreme Court order in the Mardia
Chemicals Vs Union of India case, where the court declared the above section as
constitutionally invalid and reduced the percentage of deposit provided in the
section from 75 per cent to 20 per cent. Mardia Chemicals had challenged the constitutional validity of
Sarfaesi after ICICI Bank slapped a claim of Rs 1,400 crore. IBA at its recent
meeting held on June 22 in Mumbai, had noted that there was a need to stipulate
at least a small percentage of payment at the time of admitting the appeal
under Section 17 of Sarfaesi. ?In the absence of any stipulation
regarding part-payment of dues, borrowers would now be able to stop/delay
actions by banks for recovery under Sarfaesi easily. Modification of the
decision in the Mardia Chemicals case would impress upon the borrowers the need
for repayment of the defaulted loans and curb any tendency on the part of
borrowers to delay and defeat the efforts of recovery by filing appeals against
actions of banks,? IBA indicated. IBA
has recommended that the transaction of securitisation and asset reconstruction
may be treated as different transactions under the Act. For the purpose of
securitisation transactions, registration of a securitisation company and other
requirements of capital and capital adequacy may be deleted. Once a loan asset of a bank or financial
institution is sold/assigned, pursuant to securitisation, the risk in such
asset passes on to the buyer (investor) and such loan ceases to be the loan of
the bank or financial institution. In
view of transfer of the risk in such loans to the investors, there is no need
for the RBI to regulate and supervise such transactions, after the assignment
of the loan assets is complete. ?Hence, the provision relating to any
regulation or supervision of such securitisation transactions can be deleted
from the provisions of the act,? IBA pointed out. According to IBA, the Securities and
Exchange Board of India (Sebi) should be empowered to regulate and supervise
the activity of issuing securitised debt instruments for the purpose of investor
protection. IBA has suggested that Sarfaesi be amended for the purpose of
enabling securitisation of any financial asset, of receivable, belonging to any
person, so that asset securitisation can be undertaken by any person in the
financial market. IBA observed that
recovery powers given to securitisation companies by their declaration as
public financial institutions should be withdrawn with the segregation of
securitisation transaction from asset reconstruction and dispensing with the
requirement of registration of securitisation companies special purpose
entities (SPE). As far as the recovery of securitised
debt is concerned, the SPE may be empowered to recover the defaulted debt in
accordance with the provisions of the law. If it is a private debt, the
recovery would be through the civil court. However, if the debt is a loan or
advance sanctioned by a bank, it could be recovered under the provisions of the
Debt Recovery Act or enforcement of security under the Sarfaesi or by civil
suit as the case may be. IBA has suggested that every offer
document to qualified institutional buyers in respect of securitised debt
instruments be required to be filed with Sebi and any clearance and other
compliance need to be stipulated for investor protection. Amendment to section
nine and 13 should be done in such a way that an asset reconstruction company
can exercise powers which are available to the secured creditor and such powers
would have to be exercised after giving notice under section 13 (2). |
