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ENFORCEMENT OF SECURITY INTEREST AND RECOVERY OF DEBTS LAWS AND MISCELLANEOUS PROVISIONS AMENDMENT ACT, 2016
(1) This Act may be called the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act, and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.
In the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), (hereinafter referred to in this Chapter as the principal Act), for the long title, the following shall be substituted, namely:-
"An Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights, and for matters connected therewith or incidental thereto.".
Throughout the principal Act,-
(i) for the words "securitisation company", "reconstruction company", "securitisation or reconstruction company", "securitisation company or the reconstruction company" or "securitisation company or a reconstruction company", wherever they occur, the words "asset reconstruction company" shall be substituted;
(ii) for the words "securitisation companies or reconstruction companies", wherever they occur, the words "asset reconstruction companies" shall be substituted;
(iii) for the words "qualified institutional buyer", wherever they occur, the words "qualified buyer" shall be substituted;
(iv) for the words "qualified institutional buyers", wherever they occur, the words "qualified buyers" shall be substituted.
In the principal Act, in section 2, in sub-section (1),-
(i) after clause (b), the following clause shall be inserted, namely:-
'(ba) "asset reconstruction company" means a company registered with Reserve Bank under section 3 for the purposes of carrying on the business of asset reconstruction or securitisation, or both;';
(ii) in clause (f), after the words "financial institution in relation to such financial assistance", the words "or who has raised funds through issue of debt securities" shall be inserted
(iii) after clause (g), the following clause shall be inserted namely:-
'(ga) "company" means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013);';
In the principal Act, in section 3,-
(i) in sub-section (1), for clause (b), the following clause shall be substituted, namely:-
"(b) having net owned fund of not less than two crore rupees or such other higher amount as the Reserve Bank, may, by notification, specify:";
(ii) in sub-section (3),-
(a) for clause (f), the following clause shall be substituted, namely:-
"(f) that a sponsor of an asset reconstruction company is a fit and proper person in accordance with the criteria as may be specified in the guidelines issued by the Reserve Bank for such persons;";
(b) clause (d) shall be omitted.
(iii) in sub-section (
In the principal Act, in section 5,-
(i) after sub-section (1), the following sub-section shall be inserted, namely:-
"(1A) Any document executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899 (2 of 1899):
Provided that the provisions of this sub-section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.";
(ii) after sub-section (2), the following sub-section shall be inserted, name
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Amendment Act, 2016 (hereinafter referred to as "the Act") aims to enhance the framework for the enforcement of security interests and the recovery of debts. It amends existing laws to streamline processes and provide clarity on the rights and obligations of secured creditors.
Section 6 of the Act primarily deals with the registration of security interests and the conditions under which secured creditors can enforce their rights. It emphasizes the necessity for registration with a central registry to validate the security interest.
The scope of Section 6 extends to all secured creditors, including banks and financial institutions, and applies to various types of collateral. It aims to protect the rights of creditors while ensuring that borrowers are treated fairly.
While Section 6 does not explicitly outline punishments, non-compliance with the registration requirement may lead to the inability of creditors to enforce their security interests effectively, which could result in financial losses.
In the principal Act, in section 7, in sub-section (1), for the brackets and words "(other than by offer to public)", the words "or such other category of investors including non-institutional investors as may be specified by the Reserve Bank in consultation with the Board, from time to time," shall be substituted.
In the principal Act, for section 9, the following section shall be substituted, namely:-
"9. Measures for assets reconstruction
(1) Without prejudice to the provisions contained in any other law for the time being in force, an asset reconstruction company may, for the purposes of asset reconstruction, provide for any one or more of the following measures, namely:-
(a) the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower;
(b) the sale or lease of a part or whole of the business of the borrower;
(c) rescheduling of payment of debts payable by the borrower;
(d) enforcement of security
In the principal Act, in section 12, in sub-section (2), after clause (b), the following clauses shall be inserted, namely:-
"(c) the fee and other charges which may be charged or incurred for management of financial assets acquired by any asset reconstruction company;
(d) transfer of security receipts issued to qualified buyers.".
In the principal Act, after section 12A, the following section shall be inserted, namely:-
"12B. Power of Reserve Bank to carry out audit and inspection.
(1) The Reserve Bank may, for the purposes of this Act, carry out or caused to be carried out audit and inspection of an asset reconstruction company from time to time.
(2) It shall be the duty of an asset reconstruction company and its officers to provide assistance and cooperation to the Reserve Bank to carry out audit or inspection under sub-section (1).
(3) Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset reconstruction company is being conducted in a manner detrimental to public interest or to the interests of investors in security receipts iss
In the principal Act, in section 13,-
(i) in sub-section (2), the following proviso shall be inserted, namely:-
"Provided that-
(i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and
(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee;";
(iii) for sub-section (8), the following sub-section shall be substituted, namely:-
In the principal Act, in section 14, in sub-section (1),-
(i) in the second proviso, after the words "secured assets", the words "within a period of thirty days from the date of application" shall be inserted;
(ii) after the second proviso, the following proviso shall be inserted, namely:-
"Provided further that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.".
In the principal Act, in section 15, in sub-section (4), the following proviso shall be inserted, namely:-
"Provided that if any secured creditor jointly with other secured creditors or any asset reconstruction company or financial institution or any other assignee has converted part of its debt into shares of a borrower company and thereby acquired controlling interest in the borrower company, such secured creditors shall not be liable to restore the management of the business to such borrower.".
In the principal Act, in section 17,-
(i) for the marginal heading "Right to appeal", the words "Application against measures to recover secured debts" shall be substituted;
(ii) after sub-section (1), the following sub-sections shall be inserted, namely:-
"(1A) An application under sub-section (1) shall be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction-
(a) the cause of action, wholly or in part, arises;
(b) where the secured asset is located; or
(c) the branch or any other office of a bank or financial institution is maintaining an account in which debt claimed is outstanding for the time being.";
&
In the principal Act, in section 19, for the words "concerned borrowers, such borrowers", the words "concerned borrowers or any other aggrieved person, who has filed the application under section 17 or section 17A or appeal under section 18 or section 18A, as the case may be, the borrower or such other person" shall be substituted.
In the principal Act, after section 20, the following sections shall be inserted, namely:-
"20A. Integration of registration systems with Central Registry.
(1) The Central Government may, for the purpose of providing a Central database, in consultation with State Governments or other authorities operating registration system for recording rights over any property or creation, modification or satisfaction of any security interest on such property, integrate the registration records of such registration systems with the records of Central Registry established under section 20, in such manner as may be prescribed.
Explanation.-For the purpose of this sub-section, the registration records includes records of registration under the Companies Act, 2013 (18 of 2013), the Registration Act, 1908 (16 of
In the principal Act,-
(i) section 23 shall be numbered as sub-section (1), and in sub-section (1) as so re-numbered,-
(a) the words "within thirty days after the date of such transaction or creation of security, by the securitisation company or reconstruction company or the secured creditor, as the case may be" shall be omitted;
(b) the first proviso shall be omitted;
(c) in the second proviso, the word "further" shall be omitted;
(ii) in section 23, after sub-section (1) so renumbered, the following sub-sections shall be inserted, namely:-
"(2) The Central Government may, by notification, require the registration of transaction relating to different types of
In the principal Act, after section 26A, the following chapter shall be inserted, namely:-
"CHAPTER IVA
Registration by secured creditors and other creditors
26B. Registration by secured creditors and other creditors
(1) The Central Government may by notification, extend the provisions of Chapter IV relating to Central Registry to all creditors other than secured creditors as defined in clause (zd) of sub-section (1) of section 2, for creation, modification or satisfaction of any security interest over any property of the borrower for the purpose of securing due repayment of any financial assistance granted by such creditor to the borrower.
(2) From the date of notification under sub-section (1), any cred
In section 27, the following proviso shall be inserted, namely:-
"Provided that provisions of this section shall be deemed to have been omitted from the date of coming into force of the provisions of this Chapter and section 23 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.".
In the principal Act, section 28, shall be omitted.
In the principal Act, after section 30, the following sections shall be inserted, namely:-
"30A. Power of adjudicating authority to impose penalty.
(1) Where any asset reconstruction company or any person fails to comply with any direction issued by the Reserve Bank under this Act the adjudicating authority may, by an order, impose on such company or person in default, a penalty not exceeding one crore rupees or twice the amount involved in such failure where such amount is quantifiable, whichever is more, and where such failure is a continuing one, a further penalty which may extend to one lakh rupees for every day, after the first, during which such failure continues.
(2) For the purpose of imposing penalty under sub-section (1), the adjudicating authority shall serve a notice on the asset r
In the principal Act, in section 31, clause (e) shall be omitted.
In the principal Act, in section 31A, for sub- section (2), the following sub-sections shall be substituted, namely:-
''(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.
(3) In reckoning any such period of thirty days as is referred to in sub-section (2), no account shall be taken of any period during which the House referred to in sub-section (2) is prorogued or adjourned for more than four consecutive days.
&
In the principal Act, in section 32, for the words "any secured creditor or any of his officers or manager exercising any of the rights of the secured creditor or borrower", the words "the Reserve Bank or the Central Registry or any secured creditor or any of its officers" shall be substituted.
In the principal Act, in section 38, in sub-section (2),-
(i) clause (a) shall be numbered as clause (aa) and before clause (aa) as so renumbered, the following clause shall be inserted, namely:-
"(a) other business or commercial rights of similar nature under clause (t) of section 2;";
(ii) after clause (bc), the following clauses shall be inserted, namely:-
"(bca) the manner of integration of records of various registration systems with the records of Central Registry under sub-section (1) of section 20A;
(bcb) the terms and conditions of delegation of powers by the Central Government to the Reserve Bank under section 20B.";
(iii) after clause (d), the follow
In the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) (hereinafter in this Chapter referred to as the principal Act), in section 2,-
(i) in clause (g), after the words "the date of the application", the following words shall be inserted, namely:-
"and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;";
(ii) after clause (g), the following clause shall be inserted, namely:-
'(ga) "debt securities" means debt securities listed in accordance with regulations made by the Securities Exchange Boa
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Amendment Act, 2016, introduced significant changes to the legal framework governing secured creditors in India. One of the pivotal sections, Section 26, specifically addresses the priority of secured creditors over other claims, thereby enhancing the rights of these creditors in the recovery process.
Section 26-E of the SARFAESI Act, as amended, establishes that the claims of secured creditors take precedence over certain other debts, including taxes and cesses. This provision aims to streamline the recovery process for secured creditors and ensure that their interests are prioritized in insolvency proceedings.
The scope of Section 26-E extends to all secured creditors, including banks and financial institutions, allowing them to recover dues more effectively. It clarifies the hierarchy of claims in insolvency situations, thereby providing legal certainty to secured creditors.
While Section 26 itself does not prescribe specific punishments, the overarching framework of the SARFAESI Act includes penalties for non-compliance with its provisions, which may indirectly affect the enforcement of rights under Section 26.
In the principal Act, in section 4, for sub-section (2), the following sub-section shall be substituted, namely:-
"(2) Notwithstanding anything contained in sub-section (1), the Central Government may-
(a) authorise the Presiding Officer of any other Tribunal established under any other law for the time being in force to discharge the function of the Presiding Officer of a Debt Recovery Tribunal under this Act in addition to his being the Presiding Officer of that Tribunal; or
(b) authorise the judicial Member holding post as such in any other Tribunal, established under any other law for the time being in force, to discharge the functions of the Presiding Officer of Debts Recovery Tribunal under this Act, in addition to his being the judicial Member of that Tribunal.".
In the principal Act, for section 6, the following section shall be substituted, namely:-
"6. Term of office of Presiding Officer
The Presiding Officer of a Tribunal shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment:
Provided that no person shall hold office as the Presiding Officer of a Tribunal after he has attained the age of sixty-five years.".
In the principal Act, in section 8, in sub-section (1), the following proviso shall be inserted, namely:-
"Provided that the Central Government may authorise the Chairperson of any other Appellate Tribunal, established under any other law for the time being in force, to discharge the functions of the Chairperson of the Debts Recovery Appellate Tribunal under this Act in addition to his being the Chairperson of that Appellate Tribunal.".
In the Principal Act, for section 11, the following section shall be substituted, namely:-
"11. Term of office of Chairperson of Appellate Tribunal.
The Chairperson of an Appellate Tribunal shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment:
Provided that no person shall hold office as the Chairperson of a Appellate Tribunal after he has attained the age of seventy years.".
In the principal Act, in section 17A, after sub-section (1), the following sub-sections shall be inserted, namely:-
"(1A) For the purpose of exercise of general powers of superintendence and control over Tribunals under sub-section (1), the Chairperson may-
(i) direct the Tribunals to furnish, in such form, at such intervals and within such time, information relating to pending cases both under this Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), or under any other law for the time being in force, number of cases disposed of, number of new cases filed and such other information as may be considered necessary by the Chairperson;
(ii) convene meetings of the Presiding Officers of Tribunals periodically to review their
In the principal Act, in section 19,-
(i) in sub-section (1), clause (a) shall be renumbered as clause (aa) and before clause (aa) so renumbered, the following clause shall be inserted, namely:-
"(a) the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or";
(ii) for sub-section (3), the following sub-section shall be substituted, namely:-
"(3) Every application under sub-section (1) or sub-section (2) shall be in such form, and shall be accompanied with true copies of all documents relied on in support of the claim along with such fee, as may be prescribed.".
(iii) in sub-section (3), after the second provis
After section 19 of the principal Act, the following sections shall be inserted, namely:-
"19A. Filing of recovery applications, documents and written statements in electronic form.
(1) Notwithstanding anything to the contrary contained in this Act, and without prejudice to the provisions contained in section 6 of the Information Technology Act, 2000 (21 of 2000), the Central Government may by rules provide that from such date and before such Tribunal and Appellate Tribunal, as may be notified,-
(a) application or written statement or any other pleadings and the documents to be annexed thereto required to be filed shall be submitted in the electronic form and authenticated with digital signature of the applicant, defendant or any other petitioner in such form and manner as may be prescribed;
In the principal Act, in section 20 in sub-section (3), for the words "forty-five days", at both the places where they occur, the words "thirty days" shall be substituted.
In the principal Act, in section 21,-
(i) for the words "seventy-five per cent.", the words "fifty per cent." shall be substituted;
(ii) in the proviso, for the words "waive or reduce the amount", the words "reduce the amount to be deposited by such amount which shall not be less than twenty-five per cent. of the amount of such debt so due" shall be substituted.
In the principal Act, in section 22, after sub-section (3), the following sub-section shall be inserted, namely:-
"(4) For the purpose of proof of any entry in the 'bankers books', the provisions of the Bankers' Books Evidence Act, 1891 (18 of 1891) shall apply to all the proceedings before the Tribunal or Appellate Tribunal.".
In the principal Act, after section 22, the following section shall be inserted, namely:-
"22A. Uniform procedure for conduct of proceedings.
The Central government may, for the purpose of this Act, by rules, lay down uniform procedure consistent with the provisions of this Act for conducting the proceedings before the Tribunals and Appellate Tribunals.".
In the principal Act, in section 25,-
(i) after clause (a), the following clause shall be inserted, namely:-
"(aa) taking possession of property over which security interest is created or any other property of the defendant and appointing receiver for such property and to sell the same;".
(ii) after clause (c), the following clause shall be inserted, namely:-
"(d) any other mode of recovery as may be prescribed by the Central Government.".
In the principal Act, in section 27, for sub-section (1), the following sub-section shall be substituted, namely:-
"(1) Notwithstanding that a certificate has been issued to the Recovery Officer for the recovery of any amount, the Presiding Officer, may by an order, grant time for payment of the amount, provided the defendant makes a down payment of not less than twenty-five per cent. of the amount specified in the recovery certificate and gives an unconditional undertaking to pay the balance within a reasonable time, which is acceptable to the applicant bank or financial institution holding recovery certificate.
(1A) The Recovery Officer shall, after receipt of the order passed under sub-section (1), stay the proceedings until the expiry of the time so granted.
(1B) Where defendant agrees to
In the principal Act, after section 30, the following section shall be inserted, namely:-
"30A. Deposit of amount of debt due for filing appeal against orders of the Recovery Officer.
Where an appeal is preferred against any order of the Recovery Officer, under section 30, by any person from whom the amount of debt is due to a bank or financial institution or consortium of banks or financial institutions, such appeal shall not be entertained by the Tribunal unless such person has deposited with the Tribunal fifty per cent. of the amount of debt due as determined by the Tribunal.".
In the principal Act, after section 31A, the following section shall be inserted, namely:-
"31B. Priority to secured creditors.
Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.
Explanation.-For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured asse
In the principal Act, in section 36, in sub-section (2),-
(i) clause (a) shall be numbered as clause (aa) and before clause (aa) as so renumbered, the following clause shall be inserted, namely:-
"(a) other business or commercial rights of similar nature under clause (jb) of section 2;";
(ii) after clause (c), the following clause shall be inserted, namely:-
"(ca) the form of application and the fee for filing application under sub-section (3) of section 19;
(iii) in clause (cc), for the brackets, figure and letter "(3A)", the brackets, figure and letter "(3B)" shall be substituted;
(iv) after clause (cc), the following clauses shall be inserted, namely:-
&n
The Indian Stamp Act, 1899 shall be amended in the manner specified in the First Schedule.
The Depositories Act, 1996 shall be amended in the manner specified in the Second Schedule.
THE SECOND SCHEDULE
(See section 44)
AMENDMENT TO THE DEPOSITORIES ACT, 1996
(22 OF 1996)
In section 7, after sub-section (1), the following sub-sections shall be inserted, namely:-
"(1A) Every depository on receipt of intimation from a participant register any transfer of security in favour of an asset reconstruction company as defined in clause (ba) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) along with or consequent upon transfer or assignment of financial asset of any bank or financial institution under sub-section (1) of section 5 of that Act.
(1B)
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Amendment Act, 2016 (hereinafter referred to as "the Act") aims to enhance the framework for the enforcement of security interests and the recovery of debts. This amendment is significant in the context of improving the efficiency of financial institutions in recovering dues and managing non-performing assets (NPAs).
Section Sch.1 of the Act introduces amendments to existing laws governing the enforcement of security interests and the recovery of debts. It primarily focuses on the procedural aspects of filing cases and the jurisdiction of tribunals.
The scope of Section Sch.1 extends to all secured creditors and financial institutions, providing them with a clearer framework for the enforcement of security interests. It also aims to streamline the process of debt recovery, thereby reducing litigation time and costs.
While the specific punishments for non-compliance with Section Sch.1 are not detailed in the provided sources, penalties for related provisions under the SARFAESI Act indicate that companies and their officers may face fines for defaults in compliance.
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