It is not very easy to default to defraud the banks and
financial institution by the defaulting borrower since various statutory
protections are provided to the lending banks and financial institutions. The
activities of borrowing and lending are inseparable activities and there is a
change from savings based economy to credit based economy not only in
individual’s budget but also in the budget of a country.
When a person borrows money, a duty is cast on him not
only to repay the money borrowed but also to pay interest in time at the agreed
rate on the amount borrowed. Therefore so long as the amount due is not repaid
there remains a liability on the borrower. A duty is cast on the lender also to
realize the money lent with interest. In spite of the fact that the lending
institution take precautions and take sufficient security for the money lent,
some debts become bad and irrecoverable in the ordinary course of business. Bad
debt or non-performing asset would mean an asset or account of a borrower which
has been classified by a bank or financial institution as sub-standard, doubtful
or loss asset in accordance with the direction or guidelines relating to asset
classification issued by the Reserve Bank of India.
DRT Act, 1993 and SRFAESI Act 2002
Recovery of debts has become a very difficult task for
the banks and financial institutions and their bad debts or non-performing
assets are on the rise. The process of realization or Recovery of
non-performing assets (NPA) through the normal process is time consuming. To
hasten or speed up the recovery process and keeping in view the alarming
increase in NPAs, the Government of India has enacted the Recovery Debts Due to
Banks and Financial instructions Act 1993 Popularly known as DRT Act. The DRT
Act had some deficiencies inasmuch as it did not provide for assignment of debt
to securitization companies and the secured assets could not be liquidated in
time. Therefore, the union Government has brought in a legislation called the
Securitization and Reconstruction of Financial Assets and Enforcement of
security Interest Act 2002 to remedy the deficiency. It is generally referred
to as SRFAESI Act. The SRFAESIA Act is not in derogation of The DRT Act. The purpose
of DRT Act as well as SRFAESI Act is recovery of debt through non-adjudicatory
process and to provide cumulative remedies to the secured creditors.
The SRFAESI Act provides for setting up of asset
reconstruction companies, special purpose vehicles, asset management companies
etc. by removing all fetters on the rights of the secured creditor, he is given
rights of the secured creditor; he is given a right to choose one or more of
the cumulative remedies. To give more teeth to the Act, the SRFAESI Act, 2002
has been amended in the year 2004 under the enforcement of security interest
and Recovery of Debts Laws (Amendment) Act, 2004 Where under certain changes
have been introduced in the act by insertion of amendment or addition to the exestuation
sections. It is made specific in the preamble that the Act undertakes to
regulate (1) securitization: (2) reconstruction of financial assets and (iii)
enforcement of security interest all these three concepts are independent of
each other.
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