Panel set to take up Contract Act, Debt Recovery Tribunal Act on April 10

Jayshree Bose

Mumbai, Apr 5: The Expert Legal Committee, set up in February under the aegis of the ministry of finance with TR Andhyarujina, senior advocate and former solicitor general of India as its chairman, will be holding its second meeting in Mumbai on April 10. The high-level committee, which was set up for the purpose of reviewing existing banking legislation in India and recommending cases which merit either amendments or fresh legislation, has on its agenda for the April 10 meeting discussions on Section 28 of the Indian Contract Act which deals with the limitation period of bank guarantees and a review of the Recovery of Debts (due to banks and financial institutions) Act, 1993, better known as the Debt Recovery Tribunal Act. Senior officials from commercial banks have also been invited to present their viewpoint at the April 10 meeting.

The eight member committee, which has representation from the finance and law ministries and the Reserve Bank of India, also includes independent legal experts. Thecommittee, which will look at major changes required in banking legislation, has within its scope not only issues relating to recovery, but also those pertaining to autonomy in the banking sector--many of which were recommended in the report of the second Narasimham Committee.

Among these Acts which the committee is likely to review in succession are The Banking Regulation Act (1949), The Banking Companies (Acquisitions and Transfer of Undertakings) Act (1970), The Transfer of Property Act (1882), The Bankers' Books Evidence Act (1891), and others.

In fact, the committee has decided to look beyond the scope of the Narasimham Committee recommendations and review other Acts such as The Negotiable Instruments Act, section 138 of which relates to the bouncing of cheques--as well as any other legislation that may require amendment.

At the first meeting of the committee, held in Delhi on March 6, it was decided that the deadline for submission of the committee's reports would be June 30, 1999, extendable upto December 31, 1999, if the situation so warrants. However, even the December deadline is perceived to be a short one, considering the sheer volume of work involved. To expedite work further, the committee will discuss a few specific Acts at each meeting and submit individual reports and recommendations soon afterwards, instead of going in for a consolidated one time report separately on each Act by the stipulated deadline.

Some of the areas identified by the 1998 Narasimham Committee report for legislative change which are slated to be taken up by the Expert Committee are:

Section 28 of the Indian Contract Act, where a recent amendment has sparked off apprehensions that banks can no longer limit their liabilities in matters of bank guarantee commitments to a certain period and will have to carry these in their books for long periods as outstanding obligations. In the case of bank guarantees extended to the government, the period could be as long as 30 years. This could either result in curbing theissue of fresh guarantees, or, in the case of banks who do continue to issue them, be reflected in their books as an increase in risk-weighted assets with a commensurate hike in capital adequacy requirements (although there would not be an real increase in their assets).

Amendment of the Bankers' Books Evidence Act, on which the Shere Committee has already given its recommendations about the need to have separate legislation governing electronic banking transactions. In this case, the issue pertains to greater clarity about how tenable computer-generated documents would be from the legal point of view and other aspects such as finality of payment, onus on the customer for maintaining secrecy, etc,.

Amendment to the Transfer of Property Act, which today does not permit foreclosure of mortgages without judicial intervention in most cases--thereby holding up recovery of bad debts. The contention is that this Act is archaic at a time when professional financing institutions dominate the creditscene.

Amendments to the Banking Companies (Acquisitions and Transfer of Undertakings) Act, to grant greater managerial autonomy to public sector banks by bringing down the minimum requirement of 51 per cent government ownership and to bring about changes in the constitution of the board of directors and managing committees in these banks. This has proved to be one of the most debatable areas for successive governments to decide upon.

Amendments to the SBI Act to consider the RBI shareholding in SBI, and the constitution of the central board with a view to inducting more whole-time directors.

Amendments to the SBI Subsidiary Banks Act required with regard to SBI's holdings in the associate banks, a review of the provisions to consider the options of either the merger of the associate banks amongst themselves, or with the SBI, or, allow some of the associate banks to operate independently. It was also recommended that the boards be reconstituted along the lines of those in commercial bankswith chairmen of their own in each case, with a managing director and two whole-time directors.

Further discussions on the Debt Recovery Tribunal Act would also figure on the agenda of the April 10 meeting, although this Act was reviewed earlier by a separate committee which has already submitted its report.

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