Parliamentary panel approves debt recovery law with changes

A parliamentary panel has recommended doing away with the present restrictions on the composition of the board of directors of asset reconstruction companies (ARCs).

And, suggested other changes in a government Bill to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002 and other relevant legislation.

A committee of both Houses, headed by Rajya Sabha member Bhupender Yadav of the ruling party, has recommended doing away with the existing clause in the Sarfaesi law which states that more than half of the members in an ARC board cannot be either nominees of any sponsor or associated in any manner with the sponsor or any of its subsidiaries.

This was suggested following the proposed permission to the sponsor of an ARC to hold up to 100 per cent stake in it and to permit non-institutional investors to invest in securitisation receipts.

Amendments to Sarfaesi were incorporated in the broader legislation—the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill — presented by finance minister Arun Jaitley in the Lok Sabha earlier this year.

The Bill also sought to amend the Recovery of Debts due to Banks and Financial Institutions Act, 1993; the Indian Stamp Act, 1899, and the Depositories Act, 1996.

The report of the committee was presented in both houses of Parliament on Friday.

To give effect to the finance minister's speech in the Budget for 2016-17 to permit non-institutional investors to invest in security receipts of ARCs, the panel recommended insertion of the words "qualified buyers" in place of "qualified institutional buyers" in relevant clauses.

The panel also suggested empowering the Reserve Bank to entrust any specialised body to carry out a forensic audit of ARCs. The Bill sought to empower RBI in this regard.

It wanted more clarity in the norms for starting the business of securitisation in ARCs. It basically wanted clarity that RBI not have any maximum limit while imposing these norms.

The original Act provides for an owned fund of not less than ~2 crore or such other amount not exceeding 15 per cent of the total financial assets acquired by these companies to commence their business.