Skip to main content

RBI to solely decide which loan is an NPA - Gujarat HC

Gujarat High Court rules Sarfaesi Act amendment unconstitutional, clips powers of other regulators of NPA classification

The Reserve Bank of India has now become the sole regulator of borrowing and lending in the country.

The Gujarat High Court in a ruling on Thursday took away powers to determine whether asset is NPA or not and the period of non-payment that would make an asset NPA from all regulators except the RBI.

A division bench headed by Chief Justice Bhaskar Bhattacharya has ruled that a 2005 amendment to in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act, 2002 was illegal, unconstitutional and contrary to the object of the Act.

The amendment which defines NPA under section 2(1)(O) classified different institutions (60 in total) under two groups – those under the purview of the RBI and those regulated by other agencies. A petition moved by a borrower through advocate Vishwas Shah and Masoom Shah had challenged the amendment.

The court observed that for the purpose of enforcing a statute like the Securitisation Act, which deviates from the ordinary laws of the land relating to attachment, sale and recovery of possession of the secured asset, the fate of a borrower cannot be left in the hands of the regulators of those financiers.

With the judgment, RBI can determine classification of NPAs by banks and various types of financial institutions – NBFCs, LIC, state finance companies among others.

At present, banks classify a borrower's (consumer or corporate) account as NPA after continuous non-payment of principal and interest for 90 days and make necessary provision for the same.

However, NBFC, state finance companies (SFCs promoted by state governments) and other companies get a different period to determine whether the asset is NPA or not.

Certain housing finance companies, SFCs and companies like Power Finance Corporation are not under the regulation of RBI for NPA classification, they are governed by respective laws and regulators.

Meanwhile, the High Court in the same judgment has rejected the argument of the petitioner that para 2.1 of the guidelines of the RBI that classify various number of days for various types of banks and financial institutions.

The petitioner has prayed that all borrowers should be treated equally and one should not get less number of days compared with other borrower of NBFC. The court has ruled that the guidelines were dealt with in the 2004 judgment of the apex court.

Before the amendment the Act, RBI was the regulator for the banking, non-banking institutions and securitization agencies for deciding the period after which the loans can be treated as NPA. Till 2004, RBI had set the NPA period for banks at 90 days, and at 180 days for NBFCs.

 Article referred: http://www.dnaindia.com/money/report-now-rbi-to-solely-decide-which-loan-is-an-npa-1981824


Comments

Post a Comment

Most viewed this month

Appellate authorities under Special Statutes cannot be asked to condone delay

Madras High Court in R.Gowrishankar vs. The Commissioner of Service Tax has held that Appellate authorities cannot be asked to condone the delay, beyond the extended period of limitation A Division Bench comprising of Justices S. Manikumar and D. Krishnakumar, made this observation while considering an appeal filed against Single Bench order declining to set aside the order made in the condone delay petition filed by the petitioner to condone 223 days in filing the appeal before the Commissioner of Service Tax (Appeals). Article referred: http://www.livelaw.in/appellate-authorities-special-statutes-cannot-asked-condone-delay-beyond-extended-period-limitation-madras-hc/
Post a Comment
Read more

'Seize assets to pay damages to accident victim'

Her story might be an inspiration for the physically challenged but justice has remained elusive for her. In 2008, a bus accident left research engineer S Thenmozhi, 30, paraplegic. In April 2013, the motor accident claims tribunal directed the Tamil Nadu State Transport Corporation (TNSTC) to provide her a compensation of 57.9 lakh. However, TNSTC refused to budge and on Tuesday a city court ordered attaching of movable assets of the transport corporation. Thenmozhi was employed in C-DOT, a telecom technology development centre in Bangalore. On July 21, 2008, she was coming to Chennai in a private bus. Around 2am, the bus had a flat tyre and the driver parked it on the left side of the road near Pallikonda in Vellore district on the Bangalore-Chennai highway. While the tyre was being changed, a TNSTC bus of Dharmapuri division hit the stationary bus. The rear part of the bus was smashed and passengers were injured. Thenmozhi who had a seat at the back of the bus suffered...
Post a Comment
Read more

Mumbai ITAT rules income of offshore discretionary trust is subject to tax in India

The Mumbai Income Tax Appellate Tribunal (ITAT) has recently determined the following issue in the affirmative in the case of Manoj Dhupelia: Should the income of an offshore discretionary trust be subject to tax in India, if no distributions have been made to beneficiaries in India? The question arose from appeals filed by individual beneficiaries in relation to a Lichtenstein-based trust, the Ambrunova Trust and Merlyn Management SA (the Trust) with the ITAT. It is important to note that the individuals in this case were amongst those first identified by the Government of India (GOI) as holding undeclared bank accounts in Lichtenstein. The ITAT ruling raises the following issues: Taxation of Trust Corpus: ITAT classified the corpus of the trust as "undisclosed income" and declared it taxable in the hands of the beneficiaries. Taxation of Undistributed Income: ITAT refused to draw a distinction between the corpus and undistributed income from the trust and declared i...
Post a Comment
Read more