The government has promulgated an Ordinance to vest powers of management with lenders for companies whose assets have been taken over under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.
Officials said there was some ambiguity in the law. The Act provided the procedures and consequences for taking over assets and also specified the procedure for management of secured assets, but the powers had not been explicitly spelt out.
"Though the law provided for management of secured assets explicitly, it was a little unclear about the management of business. The powers were available to asset reconstruction companies that derive the powers from the lenders," an official said.
The Ordinance, notified on Thursday following clearance by the Union Cabinet earlier in the day, has also specified that lenders can take over assets after giving a 60-day notice to the defaulting borrower.
Lenders would, however, be obliged to respond to any query raised by the borrower.
At the same time, the communication from the lender did not allow the borrower to appeal against the lenders, said an official.
Borrowers can only move the debt recovery tribunal after the assets have been taken over. The move by the borrower would not be treated as an appeal but a petition or an application, an official said.
The borrower could, however, choose to appeal against the debt recovery tribunal's order in the debt recovery appellate tribunal upon depositing 50 per cent of the disputed amount. The amount can be reduced to 25 per cent by the appellate tribunal.
The government has also defined the scope of debt recovery tribunals.
They are now mandated to only look at the facts of a case. The debt recovery tribunals have also been asked to dispose of cases related to the foreclosure law within 60 days. In case of a delay, the reasons are to be spelt out. If the case is not disposed of within four months, the borrower or the lender can approach the appellate tribunal.
The Ordinance also states that once the assets are taken over by the assets reconstruction company, a petition for amalgamation of cases can be filed in the appellate tribunal. "This will help in speeding up recovery since individual lenders had to file separate cases in debt recovery tribunals," an official said.
The Ordinance has also defined powers available with the Reserve Bank of India, which has now been vested with powers to seek certain details.
Amendments to the foreclosure law had been necessitated following a Supreme Court judgment that upheld its constitutional validity but had struck down sub-section 2 of Section 17 of the Act dealing with asset takeover by lenders.
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