Ministry may revive deposit clause for defaulter-borrowers

Defaulting borrowers may have to deposit part of the disputed amount if they want to stall seizure and sale of assets by lenders.

If the finance ministry has its way, the clause will be introduced in the Securitisation Act through an amendment. Finance minister P Chidamambarm in his Union Budget had announced that the Act would be amended.

It is now felt that the borrower should submit the deposit amount only at the appellate authority, debt recovery appellate tribunal (DRAT), and not at the debt recovery tribunal (DRT), banking sources close to the development said.

Another amendment is likely to reduce the deposit amount required to be submitted by the borrower at the DRAT in the case of assets that have been sold to asset reconstruction companies. The amount might to be reduced to 25-50 per cent instead of 75 per cent, sources said.

In April 2004, the Supreme Court had struck down Section 17(2) of the Securitisation Act which stated that if a defaulter wants to file an appeal with a DRT against the lender, it needs to deposit 75 per cent of the claim by the lenders with the DRT.

The finance ministry is considering reimposing the deposit amount that the borrower has to pay as a precondition to filing a writ against the lenders' power to seize and sell assets.

"The suggestion was made by the Indian Banks' Association. Bankers are all hoping that if the change is made, frivolous and endless litigation will not be entertained," a bank official said.

This would mean that a genuine borrower can go to the DRT and stall the seizure of assets by lenders without submitting any amount. But if the case is dismissed by the DRT, the borrower can take the case to the higher DRAT only after submitting 75 per cent of the due amount.

The draft bill with the changes is expected to be ready in a month and tabled in Parliament for approval. Currently, the amendments are being discussed at the finance ministry and the Reserve Bank of the India with inputs from bankers.

Bankers, however, feel the change might not come through since this would mean application of different yardsticks.