‘System where banks, FIs stood in queue didn’t work’

Thereafter, in the year 1993, the then Finance Minister had introduced the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, which provided for setting up of the debt recovery tribunals, where the banks and FIs could go and file the cases for any claim of more than Rs 10 lakh.

In the year 2002, the total number of cases filed by the banks and FIs before the Debt Recovery Tribunals as on 31st March, 2002, is 56,988. The total claims, which have been struck in these tribunals are to the tune of Rs 1,08,665 crore, close to Rs 1,10,000 crore, that is, approximately 1.4th of what the national Budget is. What we have managed to recover, in the last nine years, as against these claims of Rs 1,08,665 crore, in terms of decrees on paper, is only Rs 18,556 crore. The actual recovery of money against claims of Rs 1,08,665 crore is only Rs 4,737 crore.

So, when Mr Kapil Sibal was speaking in terms of alternative routes rather than through courts or through tribunals I am sure, he was seized of this gloomy picture where banks and FIs have claims to the extent of Rs 1,08,665 crore. Judicial procedures have become a big hurdle in the way of banks and FIs recovering their money.

We devised the 1985 legislation, the Sick Industrial Companies Act, SICA. It was a defective model for the reason that the jurisdiction of the BIFR used to be invoked after the net worth of a company became negative, that is, when the liabilities and its losses were more than its assets and reserves; it was already in the fourth stage of cancer, we then, decided to have that treated, by suggesting that it goes to the BIFR.

We then had a provision in the Act itself, that the moment a company sought an entry into the BIFR, an iron curtain, by way of Section 22, enclosed it, and nobody could institute action.

As far as the BIFR is concerned, we have a situation where, till last year — I am referring to the period ending 31st October, 2001, — the BIFR had been misused. We had a total number of 5,059 references, of which 1,293 were declined on the first day itself, because they were just devices to get into the BIFR; 792 were held not maintainable, after a hearing. So, almost 2,085 references were not maintainable. And, in the last 15-17 years that this law has been in force, the total number of companies which actually got out of sickness, were only 292.

The net worth of these, whose cases are pending there, is about Rs. 2,30,000 crore, but their accrued losses are Rs 3,88,000 crore. There is dispute about what the figure of NPAs, is. Mr. Sibal mentioned a staggering figure of Rs 56,000 crore.

Kapil Sibal (Congress): I said, for both banks and FIs, it is Rs, 77,000 crore.

Jaitley: You are right when you say that in the case of banks, it is about Rs 56,000 crore; you are right when you say that in the case of financial institutions, it is about Rs 27,000 crore, but these are the banks and FIs that we perceive to be either in the public sector or under the ownership of the people, directly or indirectly.

You have old private sector banks, you have new private sector banks, you have foreign banks, you have public sector banks, you have the FIs, and if you add up the NPAs of each, the figure today comes very close to what Shri Ashwini Kumar has mentioned, a staggering figure of Rs 98,061 crore. This particular law deals with banks, private sector banks, and financial institutions of this kind. So, the NPAs have reached a staggering figure of Rs 98,061 crore, and that is why the government has seriously been seized of the matter.

Now, under the present situation what really seems to be happening is, the creditors are chasing the debtors, the banks are chasing the defaulters, the FIs are chasing NPAs, and those people can broadly not be touched. (Interruptions)

Sibal: And defaulters are chasing the politicians.

Jaitley: Well, I was almost tempted to say… (Interruptions)

Sibal: I am sorry, please take it in a lighter vein.

Jaitley: I hope, it is not the other way round, that is, politicians chasing the defaulters. You have a situation where creditors are chasing the debtors, saying ‘‘please give me my money back’’. This particular law seeks to reverse this principle.

Sir, one criticism of this Bill that I have read in the newspapers — in fact, Mr Sibal, while supporting this Bill — I cannot say that was a criticism — had made this suggestion at the very outset — was that we are now thinking of a new legal system whereby we avoid judicial intervention.

Let me say, this is not the first time that this has happened. We had existing models available where we were avoiding judicial intervention, and creditors — both private and financial institutions — were entitled to take over this assets.

For instance, the State Financial Corporations Act. When there is a default under Section 29 of that Act, even without judicial intervention, there is power available with the financial institution to go and take over the assets.

Even under sections 172-173 of the Contract Act that deals with bonds, if there is a default, you can sell the asset without judicial intervention. Under English mortgage, which is provided for in the Transfer of Properties Act, it is provided that without judicial intervention, you can enforce the English mortgage, though only a limited section is entitled to its benefits.

Sibal: Whereas in all other legislations, the creditor has a right to sell off the asset, and through a particular procedure. Here the creditor has the right pending everything to dispose of the asset to a third party. He gets a clean and clear title that cannot be the subject matter of any dispute, that cannot be questioned. Except that what you are saying is all right.

Jaitley: Sir, under this Bill, there are already some safeguards.

You have, therefore, four broad features as far as this legislation is concerned. There is securitisation of financial assets; there is setting up of a Central Registry for registration of those security interests; there is enforcement of those security interests; and, there is a provision with regard to asset reconstruction. Now, if we just take clause 13, which is actually the soul of this legislation, if I may say so, without which this legislation would not be efficacious, you first had a provision that a bank or a financial institution that has lent money for the loan to become an NPA. Under the scheme, it becomes an NPA, if for 180 days there is no payment of installments. Under the proposed changes, it will be 90 days. After the expiry of this 90 days, there is a provision for a two months’ notice.