Financial Daily from THE HINDU group of publications
Sunday, Jul 14, 2002
Money & Banking
Industry & Economy - Industry Associations
India Inc fears `harsh' steps in ordinance
NEW DELHI, July 13
CORPORATE India is united in its rejection of the "harsh provisions'' incorporated in the ordinance for debt recovery.
After the CII called for a review of the ordinance, other leading industry associations, including the Federation of Indian Chambers of Commerce and Industry (FICCI), too have come out in support of its views.
The primary grievance of the industry stems from the fact that while the ordinance gives large powers to the banks and financial institutions to recovery sticky assets, it has made no efforts to distinguish between wilful defaulters and the rest of the defaulters.
"The Government should have made a clear distinction between wilful defaulters and those who defaulted for reasons beyond their control,'' Mr R S Lodha, President of FICCI, told Business Line.
Mr Lodha felt that the earlier RBI's classification of definition of wilful defaulters should be adopted for the purpose of the Ordinance.
Mr T.G. Keswani, Secretary, Finance, Banking and Insurance of the PHD Chamber of Commerce and Industry (PHDCCI), agreed: "While the Ordinance gives sweeping powers to take over managements, it nowhere distinguishes between wilful defaulters and non-wilful defaulters.''
He said the provision empowering banks to take over management is too harsh as it may sometime result in converting existing productive assets into inoperative assets.
On another front, Mr Lodha said the provision empowering lenders to recall a company from the Board for Industrial and Financial Reconstruction (BIFR) if three-fourth of the secured creditors agree to it should be put in place after incorporating proper checks and balances. He added the whole process should be transparent.
Besides, the issue of paying 75 per cent of deposit for an appeal to the Debt Recovery Tribunal (DRT) is quite stiff, Mr Lodha said. He added that it needs to be clarified how they are going to distinguish a secured creditors from others.Mr Keswani of PHDCCI said the issue of paying 75 per cent of the disputed amount upfront before an appeal to the (DRT was ''uncalled for''.
Meanwhile, a corporate observer felt that the Ordinance is resisted by the corporate sector as it has moved the "pendulum to the other side''. Earlier the lender had to chase the borrower, but after this Ordinance the borrower will have very little option to wriggle away from his obligations in repaying the debts.
The observer held that any form of relaxation to the Ordinance would only give an escape route to defaulters as discretionary powers can be exercised. "The Ordinance in its present form does not give any scope for usage of discretionary powers, which may not be relished by the corporates,'' the observer felt.
A senior official of the Associated Chambers of Commerce and Industry of India (Assocham) said that the chamber has not taken any view on the recently issued NPA Ordinance. Officials of CII were also not available for comments though the chamber had sought a review at the Prime Minister's Council on Trade and Industry.
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