Debt-Recovery | Bonum lex

India Tightens the noose around Loan Defaulters

The Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016 AKA the “Debt Recovery Bill”  was passed by the Lok Sabha on  the 1st of August, 2016. Subsequently Rajya Sabha also passed it on the 9th of August, 2016.

With an overwhelming record of 7,686 willful loan defaulters, 69,659 pending cases, India was in dire need of reforms. The Initial set up of the Debt Recovery Tribunals, under the Banks and Financial Institutions Act 1993. The idea then, was to fast track the recovery of debts due in banks and other financial institution and reduce the docket of the civil courts.

The Debt Recovery Bill amends four laws:

  • Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), changes are made to allows creditor to confiscate the collateral on which the loan was taken on the default in repayment.
  • Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI), Indian Stamp Act, 1899 , Stamp duty would not be charged on transactions for transfer of financial assets, in favor of assets reconstruction.
  • Depositories Act, 1996

The new law, after the assent of the President, excludes agricultural loan and student’s loan from its ambit.

The systematic application of the above changes is pivotal, especially when loan defaulters like Vijay Mallya have made a mockery of the debt recovery system.



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