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Bihar became the first state to scrap the MLA Local Area Development Fund scheme (MLALAD). According to news reports, Nitish Kumar, Bihar’s Chief Minister, is planning to replace it with the CM Area Development Programme, which would be implemented at the District level. The schemes would be selected by a district selection committee headed by the minister-in-charge and MLAs and MLCs of that district as members. The implementation shall rest with a body of engineers, headed by Engineer-in-chief. The district magistrates would only monitor implementation and contractors would be chosen through open tendering in which a representative of the Comptroller and Auditor General of India (CAG) would be present. The state government would allocate funds as per requirement. The MPLAD and MLALAD scheme was introduced in December 1993 by former Prime Minister, P.V. Narasimha Rao to enable legislators to execute small works of a local nature to meet the urgent needs of their constituents. Under the scheme, each legislator may identify projects and sanction upto Rs 2 crore per year for public works in their constituencies. The scheme was mooted after MPs demanded that they should be able to recommend certain development projects in their constituencies. The projects include assets building such as drinking water facilities, primary education, public health sanitation and roads. The initial amount allocated was Rs 5 lakh per year to each MP. It has however not been smooth sailing for the scheme. Besides the many implementation lapses (as pointed out by the Standing Committee on Finance in 1998-1199, the CAG and the Planning Commission), the constitutionality of the scheme has been questioned by various scholars and experts. In 2002, the National Commission to Review the Working of the Constitution recommended immediate discontinuation of the MPLAD scheme on the ground that it was inconsistent with the spirit of federalism and distribution of powers between the centre and the state. Former MP, Era Sezhiyan in a booklet titled ‘MPLADS – Concept, Confusion and Contradictions’ also opposed the scheme and recommended that it be scrapped since it ran contrary to the Constitutional provisions which envisaged separate roles for the Executive and Legislature. However, the Committee on MPLADS in its 13th Report and its 15th Report stated that there was nothing wrong with the scheme per se except some procedural infirmities and recommended among other things a change of nomenclature to the Scheme for Local Area Development. The debate continued with the 2nd Administrative Reforms Commission’s report on “Ethics in Governance” taking a firm stand against the scheme arguing that it seriously erodes the notion of separation of powers, as the legislator directly becomes the executive. However, in response to a Writ Petition that challenged the constitutionality of the MPLAD scheme as ultra vires of the Constitution of India, in May 2010, a five-judge bench of the Supreme Court ruled that there was no violation of the concept of separation of powers because the role of an MP in this case is recommendatory and the actual work is carried out by the Panchayats and Municipalities which belong to the executive organ. There are checks and balances in place through the guidelines which have to be adhered to and the fact that each MP is ultimately responsible to the Parliament. Meanwhile, some MPs are pushing for hiking the amount allocated under the scheme to Rs 5 crore. However, no decision has been reached yet. The Ministry of Statistics and Programme Implementation has suggested that a single parliamentary committee be formed comprising of members of both Houses of Parliament to monitor MPLAD schemes. While the question of constitutionality of the MPLAD scheme may have been put to rest by the Supreme Court ruling, other issues related to implementation of the scheme still remain. Unless problems such as poor utilisation of funds, irregular sanction of works, delay in completion of works are tackled in an efficient manner, the efficacy of the scheme will remain in doubt.
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.
