Sources told FE that the government has decided to amend the Sarfaesi Act and the law on Debt Recovery Tribunals (DRT) to help the lenders lay their hands on the defaulters assets more expeditiously than now.
While the overall approach to tackle wilful defaulting is being discussed within the finance ministry, it has also sought the Reserve Banks (RBI) opinion on whether there is at all a need for a separate legislation and separate courts with contempt powers to handle wilful defaulters.
The sources added that even if a new legislation to handle wilful defaulters is brought, which could have provisions for huge penalties, there are few takers in the ministry for an earlier plan to impose jail terms on them.
The ministry feels the RBI Master Circular on defaulters, the Prevention of Money Laundering Act, recovery laws such as the Sarfaesi Act, DRT as well as the Indian criminal and civil laws are more than enough to handle all types of defaulters. According to feedback received from lenders, putting defaulter business persons behind bars and imposing hefty fines on defaulters might have a deterrent effect, but will not actually serve the purpose of recovering unpaid dues, the sources said.
Those against a new wilful defaulter law also feel that a stringent wilful defaulter law will only scare away genuine entrepreneurs and business persons, who will fear that they might get the rough end of the stick in times of economic slowdown, during which many suffer due to cash-flow problems. Therefore, it is better to focus on reviving the economy that will in turn help business persons repay loans promptly, they said.
Expediting the process of enactment of a bankruptcy law will also ensure that India Inc can easily exit non-viable businesses so that the assets can either be sold off or put back to use quickly, they added.
A new law will definitely take time. Meanwhile, we will soon try to amend Sarfaesi law and the Recovery of Debts Due to Banks and Financial Institutions Act (under which the DRTs have been set up), a highly placed official told FE.
According to a finance ministry official, The proposed wilful defaulter law is not a priority now. We have asked the RBI for its comments on whether a separate law is needed at all. Banks are only keen on recovery and not more litigation and delays. Besides, defaulters may be committing economic offences and may even have genuine difficulties in running their businesses, but hardly any of them are siphoning off bank money for acts such as drug trafficking, illegal arms trade and terrorism.
The finance ministry has asked all the state governments to ensure that district magistrates (DMs) help lenders in taking possession of the property in a time-bound manner. The ministry has said that if DMs are still not prompt in helping the lenders, it might bring in amendments to the Sarfaesi law to ensure time-bound possession and transfer of property to lenders.
Observing delays in DRT due to several adjournments, the ministry is also considering amendments to the concerned legislation to ensure that the parties asking for a stay order from the DRT should first deposit a certain amount with the lender. The government will also soon increase the number of DRT benches and appoint more officials in DRTs.