Much before the Indian Express exposé on the debt problem of the Indian Financial System the Congress government created a Debt Recovery Tribunal (DRT) in 1993. These were the heady days when the Indian Economy was being liberalized, and the banking infrastructure had to come up to international standards with regard to non-performing assets (NPAs).
But since the DRT did not have the power to seize capital assets of the culprits the recurring loan defaults continued—the only saving grace was the transfer of all cases from the overburdened legal system to the new body. The BJP-led government in July 2002 passed an ordinance giving full powers to Banks and Financial Institutions to seize capital and current assets of defaulters and use them to recover their money.
But since some assets can be plants that employ workers, these would have to be run by the new owners till they found interested buyers. Now bankers lack the expertise to manage companies and run plants and machineries—hence an Asset Reconstruction Company (ARC) would be created to buy up the bad loans and then sell the assets for a profit.
This ordinance became the Securitisation Act on November 26, 2002…a month later came the IE exposé on the main loan defaulters. As the banks sent legal notices under the act to the defaulters, it became a matter of shame for the rogue businessmen to see their names being revealed. Leading the dubious list was the Rasiklal Mardia, owner of Mardia Chemicals, a perennial defaulter of over 9 billion Rupees!
His company challenged the Securitisation Act in the Supreme Court, which however upheld the act in national interests. The court granted the businessmen relief from one particularly tough clause of the act, which required the defaulter to deposit 75% of the loan with the DRT, before he could file an appeal with them.
This judgment came in 2004—the new Congress-led government in its budget for the year 2006 reintroduced and modified the clause. Now the defaulter had to deposit 50% of the loan amount before he could tie up the bank in frivolous appeals. Furthermore the DRT could use its judgment in reducing the deposit amount to 25% if the appellant was not deemed a willful defaulter.
