Banking Regulation (Amendment) Ordinance 2017 Notified

  The Central Government has, on 04.05.2017 come out with the Banking Regulation (Amendment) Ordinance, 2017, giving more powers to the Reserve Bank of India (RBI) to deal with non-performing assets. According to the present Ordinance, RBI can effectively ask banks to sit down with defaulters and reach a settlement as part of the package, aimed at accelerating a resolution of the Rs9.64 trillion in bad loans choking the banking system. The NPA problem is, to a large extent, confined to 50 large loan defaulters.

Under the Ordinance.,

1) The government may authorise the Reserve Bank of India (RBI) to issue directions to banks to initiate insolvency proceedings against defaulters under the bankruptcy code.

2) RBI on its own accord can issue directions to banks for resolution of stressed assets.

3) RBI may form committees with members it can choose to appoint to advise banks on resolution of stressed assets.

DRT is having the power to withdraw or cancel Recovery Certificate suo moto - Madras High Court

While deciding B Rajarajeshwari v The Presiding officer & Ors, it has been held by Madras High Court that under Section 26 of the RDDBFI Act, 1993, the Presiding Officer of DRT has been vested with the power to withdraw or cancel a Recovery Certificate after its issuance, either on application by the defendant or suo moto, to rectify any errors in the same including arithmetic or clerical errors. 

The Appellant in this Writ Petition had originally availed credit facilities from Tamil Nadu Mercantile Bank. Owing to non repayment of the dues the account was classified as NPA and the Bank had initiated recovery proceedings under SARFAESI Act. Under the SARFAESI appeals filed by the Appellant before the DRT Madurai conditional injunctions were issued wherein under the Appellant was directed to deposit Rs.16 Lakhs, which she had complied with.

The Bank had filed an Original Application before the DRT-II Chennai for recovery of the loan dues and DRT had issued a Recovery Certificate for the entire loan dues claimed by the Bank. While issuing this Final Order and the Recovery Certificate, the deposits made by the Appellant as per the orders of DRT Madurai in the SARFAESI Applications were not taken into consideration and orders were issued for the entire suit amount.

Aggrieved by this decision the Appellant had preferred an application before the DRT II Chennai for withdrawal of the Recovery Certificate on the ground that the deposits made by her have not been taken into consideration. The Tribunal rejected her application on the ground that once the Recovery Certificate has been issued it cannot be recalled. The present Writ was filed against this Order.

While deciding the matter, the Hon’ble High Court made an in depth analysis of Section 26[1] of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The High Court held that Section 26 was incorporated by the legislature for giving an opportunity to the defendant to approach the Presiding Officer to rectify any mistakes, including any clerical or arithmetic mistake, crept in while issuing a recovery certificate, which had escaped the notice of the Presiding Officer. The Court also examined the prospects as to  whether the powers conferred upon the Presiding Officer under the Section was limited only to the rectification of clerical or arithmetic errors or whether this was only illustrative.

While answering this question the Court pointed out that in Section 26 (2) of the Act the word "or" is used twice - "withdraw the certificate or correct any clerical or arithmetical mistake". While issuing a Recovery Certificate there could be a clerical error and there is also a possibility of an arithmetical error. Court held that if the section is read as a whole, there is no reason to read the word "or" as "and", that only on the happening of both, a recovery certificate could be corrected by the Presiding Officer. It was held that even though it has not been specifically mentioned under S. 26 (2) the circumstances under which a recovery certificate could be withdrawn, a bare reading of Section 26(2) of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993, makes it clear that power is conferred on the presiding officer to withdraw a certificate or correct any clerical or arithmetical error.

Court pointed out that clauses 3 and 4 of Section 27[2] of the Act were also providing for the amendment or withdrawal of the Recovery Certificate by the Presiding officer in instances where the outstanding demand is reduced or amended in appeal, on an application made by the defendant.

From the language of both these sections and from the ratios put forth by other Courts in similar matters the High Court held that the Act is unambiguously conferring powers upon the Presiding Officer to withdraw or cancel the Recovery Certificate either Suo Moto or on application by a Party and is not limited to correct or rectify the arithmetical or clerical error.

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[1] Section 26. Validity of certificate and amendment thereof:

(1) It shall not be open to the defendant to dispute before the Recovery Officer the correctness of the amount specified in the certificate, and no objection to the certificate on any other ground shall also be entertained by the Recovery Officer.

(2) Notwithstanding the issue of a certificate to a Recovery Officer, the Presiding Officer shall have power to withdraw the certificate or correct any clerical or arithmetical mistake in the certificate by sending intimation to the Recovery Officer.

(3) The Presiding Officer shall intimate to the Recovery Officer any order withdrawing or cancelling a certificate or any correction made by him under sub-section (2).

[2] 27. (1) Notwithstanding that a certificate has been issued to the Recovery Officer for the recovery of any amount, the Presiding Officer may grant time for the payment of the amount, and thereupon the Recovery Officer shall stay the proceedings until the expiry of the time so granted.

  (2)  Where a certificate for the recovery of amount has been issued, the Presiding Officer shall keep the Recovery Officer informed of any amount paid or time granted for payment, subsequent to the issue of such certificate to the Recovery Officer.

 (3) Where the order giving rise to a demand of amount for recovery of debt has been modified in appeal, and, as a consequence thereof the demand is reduced, the Presiding Officer shall stay the recovery of such part of the amount of the certificate as pertains to the said reduction for the period for which the appeal remains pending.

 (4) Where a certificate for the recovery of debt has been received by the Recovery Officer and subsequently the amount of the outstanding demands is reduced 1[or enhanced] as a result of an appeal, the Presiding Officer shall, when the order which was the subject matter of such appeal has become final and conclusive, amend the certificate or withdraw it, as the ease may be.

Secured Creditors to have priority over all debts and Government dues- Madras High Court

In a recent Judgment[1] Hon’ble Madras High Court held that in view of the newly introduced Section 26E[2] of the SARFAESI Act and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the rights of a secured creditor to realise debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. The law would govern the rights of the parties in respect of matters lis pendens.

The Revenue had claimed priority over moneys, which have been received by the petitioner Bank upon sale of the mortgaged properties under SARFAESI Act. The stand of Revenue is that a prior statutory charge is created in its favour by virtue of the provisions Section 42(1) and Section 43 of the Tamil Nadu Value Added Tax, 2006.

High Court held that there is, thus, no doubt that the rights of a secured creditor to realise debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016.

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[1] SBI v Asst. Commissioner (MANU/TN/3619/2016)

[2] "26E. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or 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, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."

Where the Borrower company is not under Liquidation workmen do not have right to claim their dues by distribution of sale proceeds in proceeding under SARFAESI Act

While deciding Pegasus Assets Reconstruction Private Limited v. HaryanaConcast Limited [(2016) 4 SCC 47], Supreme Court had clarified that the fact that a Borrower company is in liquidation shall not impede the rights of a secured creditor to enforce its secured interest in the property of the liquidated company under SARFAESI Act without the intervention of the Court or tribunal. The Apex Court had held that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. Thus, there is no plausible reason to take recourse to any provisions of the Companies Act and permit interference in proceedings under SARFAESI Act either by Company Judge or liquidator. Section 13 (9) of SARFAESI Act fully protects workmen's interests by incorporating scheme of Sections 529 and 529-A of Companies Act, 1956.

In a recent instance Janta Chini Mill Mazdoor Sangh (2016(8)ADJ347, 2016 (119) ALR 120, MANU/UP/1636/2016).After examining the legal position the Hon'ble Allahabad High Court held that at the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are taken care of by sub-section (9) of Section 13 and its five provisos of the SARFAESI Act.  If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up proceedings, it is entitled to retain the sale proceeds of its secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of the Company Act.

Based on the Apex Court decisions in Bank of Maharashtra v.Pandurang Keshav Gorwardkar and others [(2013)7 SCC 754] and Pegasus Assets Reconstruction Private Limited v. Haryana Concast Limited and another [(2016) 4 SCC 47] the High Court held that for the enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the Court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation.

The Hon’ble High Court concluded that under the provisions of SARFAESI Act, 2002, in terms of Section 13(9) interest of such workmen has been protected where the Company is under liquidation and in case company is not under liquidation then workmen have no right to claim their dues by distribution of sale proceeds in proceeding under SARFAESI Act and have no right to resist the proceedings so undertaken under the provision of SARFAESI Act for their dues.

Stranger to a loan account have no locus standi to seek information under RTI regarding loan accounts – CIC

While deciding the appeals filed by one Arun Pradhan against State Bank of India, the Central Information Commission has clarified that a person who is neither a borrower nor a guarantor in a loan account has no locus standi to seek information regarding the account.

Earlier, while deciding AR Shah v UBI, the CIC had held that Bank is clearly in a fiduciary relationship with its customers, both in relation to the information entrusted by them to the Bank as well as in regard to the business dealing between the two and hence the Bank may invoke Section 8(1)(e) of the RTI Act to deny information related to the customers, sought by a third party.

The CIC also reiterated that the rights available to public under the RTI Act is to be exercised with full responsibility so as not to overburden the public authority with frivolous and vexatious RTI applications which impinge on the scarce resources of the public authority and use the cherished right given in the RTI Act, 2005 in a diligent manner so as to enable the public authority to use its time and resources for providing information expeditiously and efficiently.