13. Attachment of Property for Debt Recovery

 

13. Attachment of Property for Debt Recovery

A.        RDDBFI :

The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (also known as the RDDBFI Act, 1993) is an Indian legislation that provides a legal framework for the expeditious recovery of debts due to banks and financial institutions. The act was enacted to address the growing issue of non-performing assets (NPAs) and streamline the recovery process.

Important Factors about the provisions of the RDDBFI Act, 1993 :

1.    Debt Recovery Tribunals (DRTs): 

The act established Debt Recovery Tribunals, which are specialized tribunals responsible for adjudicating cases related to the recovery of debts. These tribunals have the power to hear and decide cases filed by banks and financial institutions against defaulting borrowers.

 

2.  Jurisdiction : 

The DRTs have jurisdiction over cases involving loans and advances granted by banks and financial institutions, where the amount of debt claimed is 10 lakhs rupees or more. The act provides for the jurisdiction and territorial limits of these tribunals.

 

3.  Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 : 

The RDDBFI Act, 1993 works in conjunction with the SARFAESI Act, 2002. The SARFAESI Act empowers banks and financial institutions to take possession of and sell assets (including immovable properties) of defaulting borrowers without intervention from the court. The RDDBFI Act complements the SARFAESI Act by providing a legal mechanism for banks to recover the remaining dues through the DRTs.

 

4.   Appeals : 

The RDDBFI Act allows aggrieved parties to file appeals against the orders passed by the DRTs. These appeals can be made to the Debt Recovery Appellate Tribunals (DRATs), which are higher appellate bodies established under the act. Further appeals can be made to the High Court and Supreme Court, as per the provisions of the act.

 

5.   Speedy disposal of cases : 

The act aims to expedite the process of debt recovery by providing strict timelines for various stages of the proceedings. It encourages the DRTs and DRATs to dispose of cases within a specified time to ensure timely resolution.

 

The RDDBFI Act, 1993, along with the SARFAESI Act, provides banks and financial institutions with a legal framework and tools to recover their debts effectively. These acts aim to address the issue of mounting NPAs and provide a mechanism for the timely resolution of debt-related matters.

B.        SARFAESI :

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,

The SARFAESI Act, 2002 refers to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. It is an Indian law enacted by the Parliament to provide banks and financial institutions with powers to recover their non-performing assets (NPAs) efficiently.

This Act has been enacted with intent to empower banks to recover Non-Performing Assets (NPAs) without the intervention of a court.

The latest amendment of SARFAESI ACT, 2002 states that “an act of regulating securitization and reconstruction of various financial assets and enforcement of security interest and in providing for a central database of security interests that are specifically created on the rights of property, and for those matters connected therewith or incidental thereto.”

It allows banks and other financial institution to auction residential or commercial properties to recover loans. The first asset reconstruction company (ARC) of India, ARCIL, was set up under this Act.

Key features of the SARFAESI Act, 2002 include:

1.  Security Interest: 

The Act enables banks and financial institutions to create a security interest over the assets offered as collateral by borrowers. It allows them to take possession and enforce the security interest in the event of default.

2.   Enforcement of Security Interest: 

The Act empowers banks and financial institutions to take various measures to recover their dues without the intervention of a court. They can issue a notice to the borrower demanding repayment and, upon non-compliance, take possession of the secured assets and sell or lease them.

3.   Security Interest Enforcement Agencies: 

The Act establishes Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunals (DRATs) to adjudicate matters related to the enforcement of security interest. These quasi-judicial bodies handle disputes arising under the Act and oversee the recovery proceedings initiated by banks and financial institutions.

4.    Securitization and Asset Reconstruction Companies (ARCs): 

The Act allows banks and financial institutions to transfer NPAs to securitization companies or asset reconstruction companies. These companies specialize in acquiring and restructuring distressed assets with the aim of recovering dues.

5.  Central Registry: 

The Act establishes a Central Registry to maintain records of transactions related to the creation and satisfaction of security interests. The registry helps in establishing the priority of security interests and prevents multiple financing against the same assets.

6.     Borrower's Rights: 

The Act also provides certain safeguards for borrowers. It mandates that the secured creditor must issue a notice before taking possession of the secured assets, giving the borrower an opportunity to repay the dues. Borrowers have the right to approach the DRT or DRAT if they have grievances regarding the enforcement of security interest.

The SARFAESI Act, 2002 was enacted to strengthen the financial system and provide banks and financial institutions with effective tools for NPA recovery. However, it has also been subject to criticism regarding its potential misuse and infringement of borrower's rights. Amendments and judicial interpretations have played a role in shaping the implementation and effectiveness of the Act over the years.