FM finalises amendments to Debt Recovery Act - Views on News from Equitymaster

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FM finalises amendments to Debt Recovery Act

Jan 11, 2000

The finance ministry has finalised amendments to the Debt Recovery Tribunal Act (DRT). These amendments when they come into force will give more relevance to the DRT Act, provide greater security to lending banks and institutions and also provide a mechanism for reducing the NPA’s of banks and institutions. The main list of amendments being:

  1. Provisions for summary attachment of defaulter’s property at the time of filing the complaint.
  2. A speedier loan recovery process.
  3. New legislation to give an opportunity to borrowers for filing counter-claims.
  4. Transfer of cases from one tribunal to another to be made easy to speed up the recovery process.
  5. Processing officer to be given more powers to execute official receiver’s decree.

The provision for summary attachment of defaulters properties at the time of filing of the complaint will make away with a major loop hole that currently prevails. This basically means that it will not give the borrower time to do away with the company’s assets. Currently, the Sick Industries Companies Act provides for intimation to the Board for Industrial Finance and Reconstruction (BIFR) that a company is sick if its asset base stands eroded for three consecutive years. As has become normal practice companies have three years at their disposal to erode the company’s assets before it is actually declared sick and comes under the supervision of BIFR.

To conclude, this move by the finance ministry is a positive step as it will do away with delays in the legal system for clearing of cases, give more flexibility to recover dues as transfer of cases will be easy and provide the processing officer with more powers. It is also good for both banks and financial institutions as in the long term it will reduce their non-performing assets and provide greater security to their lending process. The amendment will also ensure that borrowers are careful with their borrowings and not fritter away the money raised. Earlier the borrowers could easily default on their loan repayments, as they were fully aware that the bankers did not have adequate powers and processes to recover the loans.

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