Sarfaesi Act amendments unlikely in Budget session

The government's plans to amend two laws to make debt recovery tribunals online courts and enable non-institutional investors to buy security receipts of asset reconstruction companies may be delayed if the Budget session of Parliament is adjourned once the Bankruptcy Code is passed in the Rajya Sabha.

The government is looking to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, and the Recovery of Debts Due to Banks and Financial Institutions (DRT) Act, 1993.

These amendments will strengthen the debt recovery tribunals by improving their infrastructure, including computerised processing of cases.

"Amendments to the Sarfaesi Act may be tabled soon, but these are unlikely to be cleared before the monsoon session," a government source said.

The Budget Session may end before its scheduled date of May 13 due to state elections and the lack of a concrete legislative agenda after the Bankruptcy Code.

"The debt recovery tribunals will become country's first online court," Finance Minister Arun Jaitley had said in March.

"We are all set with the amendments in the Sarfaesi Act and the DRT Act. We had planned on post facto approval by the Cabinet if Parliament approved them in the current session," said a second official.

The department of industrial policy and promotion on Monday issued a press note liberalising foreign investment for asset reconstruction companies and security receipts, which was announced in the budget for 2016-17 and was also part of the Sarfaesi Act amendments.

"Although the amendment bills are yet to be approved by Parliament, the DIPP has brought these changes into effect since there is nothing controversial about them," said Vikas Vasal of KPMG. "It should help address the issue of stressed assets in the banking sector as more investments flow into asset reconstruction companies," he added.

Changes in the Sarfaesi Act will enable non-institutional investors to invest in security receipts issued by asset reconstruction companies, which buy bad loans from banks at a discount. In case of corporate bond defaults, the changes will allow bond and debenture trustees to use provisions of the Act. So far, only banks and financial institutions can use these rules in bond default cases.


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