LegislationDebt recovery in India : The 2016 Bill and what it seeks to doVatsal Khullar- August 4, 2016The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 is listed for discussion in Rajya Sabha today.[i]The Bill aims to expeditiously resolve cases of debt recovery by making amendments to four laws, including the (i) Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and (ii) the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Recovery of Debts Due to Banks and Financial Institutions Act, 1993The 1993 Act created Debt Recovery Tribunals (DRTS) to adjudicated debt recovery cases.  This was done to move cases out of civil courts, with the idea of reducing time taken for debt recovery, and for providing technical expertise.  This was aimed at assisting banks and financial institutions in recovering outstanding debt from defaulters. Over the years, it has been observed that the DRTs do not comply with the stipulated time frame of resolving disputes within six months. This has resulted in delays in disposal, and a high pendency of cases before the DRTs. Between March 2013 and December 2015, the number of pending cases before the DRTs increased from 43,000 to 70,000.  With an average disposal rate of 10,000 cases per year, it is estimated that these DRTs will take about six to seven years to clear the existing backlog of cases.[ii]Experts have also observed that the DRT officers, responsible for debt recovery, lack experience in dealing with such cases.  Further, these officers are not adequately trained to adjudicate debt-related matters.[iii]The 2016 Bill proposes to increase the retirement age of Presiding Officers of DRTs, and allows for their reappointment.  This will allow the existing DRT officers to serve for longer periods of time.  However, such a move may have limited impact in expanding the pool of officers in the DRTs. The 2016 Bill also has a provision which allows Presiding Officers of tribunals, established under other laws, to head DRTs.  Currently, there are various specialised tribunals functioning in the country, like the Securities Appellate Tribunal, the National Company Law Tribunal, and theNational Green Tribunal.  It remains to be seen if the skills brought in by officers of these tribunals will mirror the specialisation required for adjudicating debt-related matters. Further, the 1993 Act provides that banks and financial institutions must file cases in those DRTs that have jurisdiction over the defendant’s area of residence or business.  In addition, the Bill allows cases to be filed in DRTs having jurisdiction over the bank branch where the debt is due. The Bill also provides that certain procedures, such as presentation of claims by parties and issue of summons by DRTs, can now be undertaken in electronic form (such as filing them on the DRT website).Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The 2002 Act allows secured creditors (lenders whose loans are backed by a security) to take possession over a collateral security if the debtor defaults in repayment.  This allows creditors to sell the collateral security and recover the outstanding debt without the intervention of a court or a tribunal. This takeover of collateral security is done with the assistance of the District Magistrate (DM), having jurisdiction over the security.  Experts have noted that the absence of a time-limit for the DM to dispose such applications has resulted in delays.[iv]The 2016 Bill proposes to introduce a 30-day time limit within which the DM must pass an order for the takeover of a security.  Under certain circumstances, this time-limit may be extended to 60 days. The 2002 Act also regulates the establishment and functioning of Asset Reconstruction Companies (ARCs).  ARCs purchase Non-Performing Assets (NPAs) from banks at a discount.  This allows banks to recover partial payment for an outstanding loan account, thereby helping them maintain cash flow and liquidity.  The functioning of ARCs has been explained in Figure 1.It has been observed that the setting up of ARCs, along with the use out-of-court systems to take possession of the collateral security, has created an environment conducive to lending.[iii]However, a few concerns related to the functioning of ARCs have been expressed over the years.  These concerns include a limited number of buyers and capital entering the ARC business, and high transaction costs involved in the transfer of assets in favour of these companies due to the levy of stamp duty.[iii]In this regard, the Bill proposes to exempt the payment of stamp duty on transfer of financial assets in favour of ARCs.  This benefit will not be applicable if the asset has been transferred for purposes other than securitisation or reconstruction (such as for the ARCs own use or investment).  Consequently, the Bill amends the Indian Stamp Act, 1899. The Bill also provides greater powers to the Reserve Bank of India to regulate ARCs.  This includes the power to carry out audits and inspections either on its own, or through specialised agencies. With the passage of the Bankruptcy Code in May 2016, a complete overhaul of the debt recovery proceedings was envisaged.  The Code allows creditors to collectively take action against a defaulting debtor, and complete this process within a period of 180 days.  During the process, the creditors may choose to revive a company by changing the repayment schedule of outstanding loans, or decide to sell it off for recovering their dues. While the Bankruptcy Code provides for collective action of creditors, the proposed amendments to the SARFAESI and DRT Acts seek to streamline the processes of creditors individually taking action against the defaulting debtor.  The impact of these changes on debt recovery scenario in the country, and the issue of rising NPAs will only become clear in due course of time.[i]Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016,http://www.prsindia.org/administrator/uploads/media/Enforcement%20of%20Security/Enforcement%20of%20Security%20Bill,%202016.pdf.[ii]Unstarred Question No. 1570, Lok Sabha, Ministry of Finance, Answered on March 4, 2016.[iii]‘A Hundred Small Steps’, Report of the Committee on Financial Sector Reforms, Planning Commission, September 2008,http://planningcommission.nic.in/reports/genrep/rep_fr/cfsr_all.pdf.[iv]Financial Sector Legislative Reforms Commission, March 2013,http://finmin.nic.in/fslrc/fslrc_report_vol1.pdf.ParliamentFirst no-confidence motion of the 17th Lok Sabha discussed todayNiranjana Menon- August 8, 2023Discussion on the first no-confidence motion of the 17thLok Sabha began today.  No-confidence motions and confidence motions are trust votes, used to test or demonstrate the support of Lok Sabha for the government in power.  Article 75(3) of the Constitution states that the government is collectively responsible to Lok Sabha.  This means that the government must always enjoy the support of a majority of the members of Lok Sabha.  Trust votes are used to examine this support.  The government resigns if a majority of members support a no-confidence motion, or reject a confidence motion.So far, 28 no-confidence motions (including the one being discussed today) and 11 confidence motions have beendiscussed.  Over the years, the number of such motions has reduced.  The mid-1960s and mid-1970s saw more no-confidence motions, whereas the 1990s saw more confidence motions.Figure1: Trust votes in ParliamentNote: *Term shorter than 5 years; **6-year term.Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.The no-confidence motion being discussed today wasmovedon July 26, 2023.  A motion of no-confidence is moved with the support of at least 50 members.   The Speaker has the discretion to allot time for discussion of the motion.  TheRules of Procedurestate that the motion must be discussed within 10 days of being introduced.  This year, the no-confidence motion wasdiscussed13 calendar days after introduction.  Since the introduction of the no-confidence motion on July 26, 12 Bills have been introduced and 18 Bills have been passed by Lok Sabha.  In the past, on four occasions, the discussion on no-confidence motions began seven days after their introduction.  On these occasions, Bills and other important issues were debated before the discussion on the no-confidence motion began.Figure2: Members rise in support of the motion of no-confidence in Lok SabhaSource: Sansad TV, Lok Sabha, July 26, 2023; PRS.Figure3: Number of days from introduction to discussion on no-confidence motionsNote: Number of days implies calendar days.Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.On average, no-confidence motions (excluding the one being discussed today) have been discussed for 13 hours over three days.  Discussions have lasted longer than 20 hours on four instances, most recently in 2003.  Today’s no-confidence motion was allotted 12 hours discussion time by theBusiness Advisory Committee.Following the discussion, the motion is put to vote.  26 out of 27 no-confidence motions (excluding the one being discussed today) have been voted upon and rejected.  This means that no government has ever had to resign following a vote of no-confidence.   On one occasion, in 1979, the discussion on a no-confidence motion against the Morarji Desai government remained inconclusive.  He resigned before the motion was put to vote.  50% of all no-confidence motions (14 out of 28) were discussed between 1965 and 1975.  Of these, 12 were against governments headed by Indira Gandhi.Figure4: Duration of discussion on no-confidence motionsNote: This graph excludes the no confidence motion moved on July 26, 2023.Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.In comparison, confidence motions have a more varied history.  The first motion, brought in 1979 to demonstrate confidence in Charan Singh’s government, was not discussed at all.  The Prime Minister resigned before the discussion could take place.  Since then, 11 confidence motions have been discussed in Lok Sabha, with nine occurring in the 1990s.  During this period, several coalition governments were formed, and Prime Ministers sought to prove their majority throughconfidence motions.   These motions have been discussed, on average, for 12 hours over two days.Figure5: Duration of discussion of confidence motionsSource: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.Of the 11 confidence motions discussed in Lok Sabha, seven were accepted.  On three instances, governments had to resign as they could not prove that they had the support of the majority.  On one instance in 1996, the motion was not put to vote.  Following an eleven-hour discussion on this confidence motion, Prime Minister Atal Bihari Vajpayee announced his intention to resign on the floor of the House.  He resigned 16 days into his term.Vajpayee became Prime Minister again in 1999, and faced another confidence motion.   This time, it was put to vote.   The motion was defeated by a margin of one vote.  This has been the closest result on a trust vote in the history of Lok Sabha.  The next closest result was when a motion of no-confidence against P V Narasimha Rao’s government was defeated by 14 votes in 1993.  In most cases, results have been in favour of the government by a large margin.«12345678910»
LegislationDebt recovery in India : The 2016 Bill and what it seeks to doVatsal Khullar- August 4, 2016