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The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 is listed for discussion in Rajya Sabha today.[i] The Bill aims to expeditiously resolve cases of debt recovery by making amendments to four laws, including the (i) Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and (ii) the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Recovery of Debts Due to Banks and Financial Institutions Act, 1993 The 1993 Act created Debt Recovery Tribunals (DRTS) to adjudicated debt recovery cases. This was done to move cases out of civil courts, with the idea of reducing time taken for debt recovery, and for providing technical expertise. This was aimed at assisting banks and financial institutions in recovering outstanding debt from defaulters. Over the years, it has been observed that the DRTs do not comply with the stipulated time frame of resolving disputes within six months. This has resulted in delays in disposal, and a high pendency of cases before the DRTs. Between March 2013 and December 2015, the number of pending cases before the DRTs increased from 43,000 to 70,000. With an average disposal rate of 10,000 cases per year, it is estimated that these DRTs will take about six to seven years to clear the existing backlog of cases.[ii] Experts have also observed that the DRT officers, responsible for debt recovery, lack experience in dealing with such cases. Further, these officers are not adequately trained to adjudicate debt-related matters.[iii] The 2016 Bill proposes to increase the retirement age of Presiding Officers of DRTs, and allows for their reappointment. This will allow the existing DRT officers to serve for longer periods of time. However, such a move may have limited impact in expanding the pool of officers in the DRTs. The 2016 Bill also has a provision which allows Presiding Officers of tribunals, established under other laws, to head DRTs. Currently, there are various specialised tribunals functioning in the country, like the Securities Appellate Tribunal, the National Company Law Tribunal, and theNational Green Tribunal. It remains to be seen if the skills brought in by officers of these tribunals will mirror the specialisation required for adjudicating debt-related matters. Further, the 1993 Act provides that banks and financial institutions must file cases in those DRTs that have jurisdiction over the defendant’s area of residence or business. In addition, the Bill allows cases to be filed in DRTs having jurisdiction over the bank branch where the debt is due. The Bill also provides that certain procedures, such as presentation of claims by parties and issue of summons by DRTs, can now be undertaken in electronic form (such as filing them on the DRT website). Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 The 2002 Act allows secured creditors (lenders whose loans are backed by a security) to take possession over a collateral security if the debtor defaults in repayment. This allows creditors to sell the collateral security and recover the outstanding debt without the intervention of a court or a tribunal. This takeover of collateral security is done with the assistance of the District Magistrate (DM), having jurisdiction over the security. Experts have noted that the absence of a time-limit for the DM to dispose such applications has resulted in delays.[iv] The 2016 Bill proposes to introduce a 30-day time limit within which the DM must pass an order for the takeover of a security. Under certain circumstances, this time-limit may be extended to 60 days. The 2002 Act also regulates the establishment and functioning of Asset Reconstruction Companies (ARCs). ARCs purchase Non-Performing Assets (NPAs) from banks at a discount. This allows banks to recover partial payment for an outstanding loan account, thereby helping them maintain cash flow and liquidity. The functioning of ARCs has been explained in Figure 1. 
It has been observed that the setting up of ARCs, along with the use out-of-court systems to take possession of the collateral security, has created an environment conducive to lending.[iii] However, a few concerns related to the functioning of ARCs have been expressed over the years. These concerns include a limited number of buyers and capital entering the ARC business, and high transaction costs involved in the transfer of assets in favour of these companies due to the levy of stamp duty.[iii] In this regard, the Bill proposes to exempt the payment of stamp duty on transfer of financial assets in favour of ARCs. This benefit will not be applicable if the asset has been transferred for purposes other than securitisation or reconstruction (such as for the ARCs own use or investment). Consequently, the Bill amends the Indian Stamp Act, 1899. The Bill also provides greater powers to the Reserve Bank of India to regulate ARCs. This includes the power to carry out audits and inspections either on its own, or through specialised agencies. With the passage of the Bankruptcy Code in May 2016, a complete overhaul of the debt recovery proceedings was envisaged. The Code allows creditors to collectively take action against a defaulting debtor, and complete this process within a period of 180 days. During the process, the creditors may choose to revive a company by changing the repayment schedule of outstanding loans, or decide to sell it off for recovering their dues. While the Bankruptcy Code provides for collective action of creditors, the proposed amendments to the SARFAESI and DRT Acts seek to streamline the processes of creditors individually taking action against the defaulting debtor. The impact of these changes on debt recovery scenario in the country, and the issue of rising NPAs will only become clear in due course of time. [i] Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, http://www.prsindia.org/administrator/uploads/media/Enforcement%20of%20Security/Enforcement%20of%20Security%20Bill,%202016.pdf. [ii] Unstarred Question No. 1570, Lok Sabha, Ministry of Finance, Answered on March 4, 2016. [iii] ‘A Hundred Small Steps’, Report of the Committee on Financial Sector Reforms, Planning Commission, September 2008, http://planningcommission.nic.in/reports/genrep/rep_fr/cfsr_all.pdf. [iv] Financial Sector Legislative Reforms Commission, March 2013, http://finmin.nic.in/fslrc/fslrc_report_vol1.pdf.
TRAI released its recommendations on auction of spectrum on April 23, 2012. The recommendations are in pursuance of the Supreme Court order cancelling 122 telecom licences. The cancellation was ordered on grounds of procedural irregularities and arbitrariness in the first-cum-first-serve policy for allocation of spectrum. The recommendations, if adopted by the Department of Telecommunications, would change various aspects of the present telecom policy, including (a) relationship between a telecom licence and spectrum; (b) procedure for allocation of spectrum; (c) pricing of spectrum; (d) limits on spectrum allocation; and (e) use of spectrum. Relationship between telecom licences and spectrum Previously, under the Telecom Policy 1994 (updated in 1999), spectrum was tied in with telecom licences. Since 2003, licence conditions provided for award of two blocks of 6.2 MHz of spectrum for GSM technology and two blocks of 5 MHz for CDMA technology. As per the government’s decision of January 17, 2008 (as explained in TRAI's consultation paper, see page 3 paragraph 7) additional spectrum would be awarded on the basis of increment in the number of subscribers. Service providers had to pay a licence fee (on obtaining the licence), an annual licence fee and a spectrum usage charge determined on the basis of their adjusted gross revenue. TRAI has recommended that telecom licences and spectrum should be de-linked. The service provider would thus pay separately for the value of the licence and the spectrum. With this formulation an entity that does not hold a licence, but is eligible to secure one, may also procure spectrum. This would help in avoiding situations where licence holders have to wait to secure spectrum or offer wire line services in the absence of spectrum. Procedure for allocation of spectrum TRAI has recommended that spectrum be auctioned by means of a simultaneous multiple round ascending auction (SMRA). This means that the service providers would bid for spectrum in different blocks simultaneously. In the first round of auction a reserve price (base price) set by the government is used. Reserve price for auction and payment mechanism A reserve price indicates the minimum amount the bidder must pay to win the object. In case it is too low, it may reduce the gains made by the seller and lead to a sub-optimal sale. If it is too high, it may reduce the number of bidders and the probability of the good not being sold. Various countries have adopted a reserve price of 0.5 times the final price. TRAI has recommended that the reserve price should be 0.8 times the expected winning bid. It has also recommended that telecom companies pay 67% to 75% of the final price in installments over 10 years, depending on the spectrum band. TRAI has reasoned that a higher price would reduce the possibility of further sales upon bidders securing spectrum. However, this may lead to fewer bidders and ultimately fewer service providers. It is argued in news reports that this may increase investments to be made by the service providers and eventually an increase in tariffs. Spectrum blocks and caps TRAI has recommended that the spectrum cap should be determined on the basis of market share. A service provider can now secure a maximum of 50% of spectrum assigned in each band in each service area. However, a service provider cannot hold more than 25% of the total spectrum assigned in all the bands across the country. As per the January 2008 decision, additional spectrum could be awarded to telecom companies when they reached incremental slabs of subscribers. This could extend to two blocks of 1 MHz for GSM technology, and two blocks of 1.25 MHz for CDMA, for each slab of subscribers. TRAI has recommended that spectrum should be auctioned in blocks of 1.25 MHz. Each auction would at least offer 5 MHz of spectrum at a time. Smaller blocks would ensure that service providers who are nearing the spectrum cap may secure spectrum without exceeding the cap. However, experts have argued that 1.25 MHz block may be too limited for launching services. Also, TRAI in the recommendation has noted that a minimum of 5 MHz of contiguous spectrum is required to launch efficient services with new technologies. Use of spectrum TRAI has recommended that the use of spectrum should be liberalised. This implies that spectrum should be technology neutral. Telecom companies would now be free to launch services with any technology of their choice.
