The Joint Committee of Parliament that was assigned the task of reviewing the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill 2016, deserves a pat on the back. The changes suggested by the committee will strike the right chord with the Insolvency and Bankruptcy Code, enabling both laws to work in harmony towards smoother and faster debt recovery. The Bill introduced in May had proposed amendments to various laws, mainly the Sarfaesi Act of 2002, to synchronise them with the Insolvency and Bankruptcy code, at least in spirit. But many of the revisions made to the Sarfaesi Act remained inconsistent with the insolvency resolution process, which the committee has suitably modified. For one, the inherent friction between the laws for insolvency and the laws for security enforcement has been eased by clarifying the uncertainty over the rights of secured creditors during an insolvency process.

The amendments to the Sarfaesi Act allow secured creditors to enforce their security interests, upon a default, without the intervention of courts or tribunals. While this empowers them, enforcing such a right while an insolvency resolution process is in progress can strip the Insolvency and Bankruptcy Code of its purpose and undermine its success. Recognising the need to dovetail the amendments made to the Sarfaesi Act to the Code, the committee has clarified that the secured creditors cannot enforce any collateral or undertake recovery action during the resolution process. While the proposal to empower the Reserve Bank of India to carry out audit and conduct inspection of ARCs smacks of micromanagement, it may well be the need of the hour. Rampant sale of assets by banks to ARCs, lack of disclosures once they are offloaded to the ARC, and a shaky track record of recovery, all call for sound oversight. Given that there are about 70,000 court cases pending in Debt Recovery Tribunals (DRTs) involving more than ₹5 lakh crore, tackling the issue of inadequate staffing by upping the retirement age of presiding officers of DRTs from 62 years to 65 years is also welcome.

But there are still some loose ends that need to be tied up. The main reason for delay in the bankruptcy process in India up till now has been the existence of multiple laws governing insolvency, which the new Code attempts to set right by creating a unified law. But while it designates the National Company Law Tribunal (NCLT) and DRT as the adjudicating authorities for corporates and individuals, respectively, all Sarfaesi cases will still be referred to DRTs. This can once again delay the entire debt recovery process. Therefore, moving corporate recovery cases under Sarfaesi to NCLT may be prudent. Also, while the Code provides for the creation of multiple information utilities to collect financial information, the new Bill talks of creating a central registry to maintain records of transactions related to secured assets. Ironing out such inconsistencies and adhering to the timelines laid down by both the laws will be key to a quick resolution.

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