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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.
The Arms Act, 1959 governs matters related to acquisition, possession, manufacture, sale, transportation, import and export of arms and ammunition. It defines a specific class of ‘prohibited’ arms and ammunitions, restricts their use and prescribes penalties for contravention of its provisions. Section 7 of the Act forbids the manufacture, sale, and use of prohibited arms and ammunition unless it has been specially authorised by the central government.1 Section 27(3) prescribes that any contravention of Section 7 that results in the death of any person 'shall be punishable with death'.2 Section 27(3) of the Act was challenged in the Supreme Court in 2006 in State of Punjab vs. Dalbir Singh. The final verdict in the case was pronounced last week. The judgment not only affects the Act in question but may have important implications for criminal law in the country. Legislative history of Section 27 When the law was first enacted, Section 27 provided that possession of any arms or ammunition with intent to use the same for any unlawful purpose shall be punishable with imprisonment up to seven years and/ or a fine. This section was amended in 1988 to provide for enhanced punishments in the context of escalating terrorist and anti-national activities. In particular, section 27(3) was inserted to provide for mandatory death penalty. The Judgment The Supreme Court judgment says that Section 27(3) is very 'widely worded'. Any act (including use, acquisition, possession, manufacture or sale) done in contravention of Section 7 that results in death of a person will attract mandatory death penalty. Thus, even if an accidental or unintentional use results in death, a mandatory death penalty must be imposed. The bench quotes relevant sections of an earlier judgment delivered in 1983, in Mithu vs. State of Punjab. In this case, the court had looked into the constitutional validity of mandatory death sentence. The final verdict had ruled that a provision of law which deprives the Court of its discretion, and disregards the circumstances in which the offence was committed, can only be regarded as 'harsh, unjust and unfair'. The judgment goes on to say that the concept of a 'just, fair and reasonable' law has been read into the guarantees under Article 14 (Equality before law) and Article 21 (Protection of life and personal liberty) of the Constitution. A law that imposes an irreversible penalty such as death is 'repugnant to the concept of right and reason'. Therefore, Section 27 (3) of the Arms Act, 1959 is unconstitutional. Section 27(3) is also unconstitutional in that it deprives the judiciary from discharging its duty of judicial review by barring it from using the power of discretion in the sentencing procedure. What happens now? Under Article 13 of the Constitution, laws inconsistent with the Constitution shall be null and void. Therefore, Section 27(3) of the Arms Act, 1959 shall now stand amended. Courts shall have the discretion to impose a lesser sentence. It is noteworthy that the Home Minister had also introduced a Bill in the Lok Sabha on the 12th of December, 2011 to amend the Arms Act, 1959. The Bill seeks to remove the words ‘shall be punishable with death’ and replace these with ‘shall be punishable with death or imprisonment for life and shall also be liable to fine’. This Bill is currently being scrutinized by the Standing Committee. Notes: 1) Section 7 of the Arms Act, 1959: “7. Prohibition of acquisition or possession, or of manufacture or sale, of prohibited arms or prohibited ammunition. No person shall -- (a) acquire, have in his possession or carry; or (b) use, manufacture, sell, transfer, convert, repair, test or prove; or (c) expose or offer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof; any prohibited arms or prohibited ammunition unless he has been specially authorised by the Central Government in this behalf.” 2) Section 27(3) of the Arms Act, 1959: “27(3) Whoever uses any prohibited arms or prohibited ammunition or does any act in contravention of section 7 and such use or act results in the death of any other person, shall be punishable with death.” Sources: Arms Act, 1959; Supreme Court judgment
