Debt collection by banks/financial institutions in India
By Sreeraj Ghosh, L.B. Jha & Co. Chartered Accountants
Banks and financial institutions have been experiencing difficulties in recovery of dues from their Non-Performing Assets (NPAs) and enforcement of securities charged with them because of protracted legal hassles. For this reason, "The Recovery of Debt Dues to Banks and Financial Institutions Act, 1993" was enacted to facilitate faster recovery from NPAs. Subsequently, Debt Recovery Tribunals (DRTs) were established for dealing exclusively with debt recovery applications of banks and financial institutions. Debt Recovery Appellate Tribunals (DRATs) were also established and have now been functioning for more than a decade.
"The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" came into force as of 21 June 2002. The Act has effect even if anything inconsistent therewith has been stated in any other laws during its time in force. The Act specifically bars civil courts' jurisdiction to entertain any matter, including granting injunction in all areas, which a DRT/DRAT enjoys under the Act referred to earlier as well as under this Act. Banks can float Asset Reconstruction Companies (ARCs) singly or as a joint venture with other players, or they can become a sponsor by holding no less than 10% of the paid up equity capital of a reconstruction/securitisation company. ARCs as well as banks and financial institutions can now enforce security interest in favour of secured creditors without the intervention of courts/tribunals.
L.B. Jha & Co. Chartered Accountants
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