Monday, August 13, 2007

Securitisation Act

Shri T.L.Ram Mohan, Senior Advocate wrote an expert artice on Securitisation Act on 08.08.2007: Part II

The appointment of committees to suggest ways and means of bringing legislative and administrative changes has been a feature of democracies the world over. The appointment of a committee is useful to focus the attention on a particular subject and suggest remedies which can be placed before the legislative and executive bodies for implementation. Sometimes, appointment of a committee is a convenient mode of disposal of a burning issue by allowing the tempers to cool while the committee decides on the issues. The Narasimmam Committee and Tiwari Committee constituted by Government of India makes several recommendations. Flowing from its recommendations, the Recovery of Debts Due to Banks and Financial Institutions Act (DRT Act) was introduced in Parliament in 1993. The DRT Act laid down a scheme to enable financial institutions to recover the overdue advances by approaching the tribunals constituted under the Act instead of resorting to time consuming litigations in civil courts. It is very easy to say that the shackles of procedure should be loosened to enable financial institutions to recover their dues because the monies advanced by them are public funds. Unfortunately, banking practices are not as ideal as they ought to be. A constitution bench of Supreme Court of India in Central Bank of India Vs Ravindra, reported in JT 2001 (9) Sc 101 found that corrupt and unhealthy practices have crept into the banking services and there are many instances of obtaining signatures of the borrowers in blank papers and making entries on printed forms without notice to the borrowers. There are also instances of banks not giving credit where it is due and making claim where the same is not sustainable. On a review of the situation the Supreme Court of India while upholding the DRT Act laid down certain guidelines which are to be followed in the adjudication of claims by banks. The Supreme Court of India also laid down that the rate of interest should be according to the guidelines of the Reserve Bank of India and tempered by court taking into account the burden on the borrower. While the banks deal with the funds of the public and therefore entitled to some consideration, the borrowers who are also part of the public deserve equal consideration. The borrowers cannot except in rare cases, fund the business or industry based only on the advances from financial institutions. The borrowers contribute their own funds, the funds of the family members and friends. In many cases, though a bank may not be ruined, members of families are reduced to penury. While unshackling the procedural laws one should not lose sight of justice that is due to a borrower.

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