The Ordinance passed in June 2002, was challenged in the Delhi High Court and also in the Supreme Court. What are the subsequent developments since then?

Delhi High Court dismissed the writ filed by Mardia Chemicals and vacated the stay. But stay by the Supreme Court was still in operation. The Apex Court however had not stayed the complete provisions of the Ordinance. It has permitted take over of secured assets under provisions of the Ordinance and has only stayed the sale or lease of such assets until disposal of the litigation challenging the Ordinance before it.

Without losing further time the finance minister introduced the Securitisation Bill in the houses of Parliament and this was quickly passed into Law by both the House. The text of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act No. 54 of 2002) as passed by the Parliament and approved by the President is given for ready reference in separate pages numbering five.

To assuage the fears of business and industry on account of vesting sweeping powers in the hands of the Banks, the finance minister allowed the following to safeguard their interests:

1. He announced a one-time settlement for defaulters who had borrowed up to Rs 10 crore from public sector banks (PSBs) and

2. he agreed to frame a Fair Practice Code in consultation with the central bank and promised to extend the recovery legislation to finance companies and cooperative banks.

Those who seek the route of OTS will be able to insulate themselves from the enforcement provisions of the Act. The Code of Fair Practice is a check over the banks to conduct themselves in fairness to the genuine interests of the borrowers and accept due accountability on their part.

The Reserve Bank had issued draft guidelines to Securitisation Companies and Reconstruction Companies on December 18, 2002, soliciting views of the Banks, Financial Institutions and others. The Central Bank has since finalised the guidelines taking into account the feedback received. The guidelines and directions provide for different aspects of asset reconstruction and securitisation relating to registration, owned fund, permissible business, operational structure for giving effect to the business of securitisation and asset reconstruction, deployment of surplus funds, internal control system, prudential norms, disclosure requirements, etc. so as to facilitate the smooth formation and functioning of Securitisation Companies and Reconstruction Companies It is clarified that the security receipts, referred to in paragraph 7(2) of the Act, have to be issued by the trust/s set up by the Securitisation Company and Reconstruction Company. In addition to the guidelines and directions, which are mandatory, the Bank has also issued guidance notes of recommendatory nature covering aspects relating to acquisition of assets, issue of security receipts etc.

The Bank is in the process of framing a set of standard guidelines in the matter of takeover of the management, sale or lease of whole or part of the business of the borrower. Securitisation Companies and Reconstruction Companies are, therefore, advised to refrain from exercising the measures of take over of management, sale or lease of the borrowers' business as provided for in Section 9 of the Act, until guidelines in this regard are notified by the Reserve Bank of India. As regards enforcement of security interest, Securitisation Companies and Reconstruction Companies may follow the Security Interest (Enforcement) Rules, 2002 notified by the Government of India as also the relevant provisions in the Act.

To further amplify the procedural steps the RBI issued comprehensive guidelines-

1. for the execution of the provisions of the Act titled The Securitisation Companies and Reconstruction Companies (Reserve Bank)Guidelines and Directions, 2003

2. and another set of guidelines For ARC/SC Companies titled RBI Guidance Notes for Securitisation Companies and Reconstruction Companies.

3. Further guidelines are issued by RBI for Sale of Financial Assets to Securitisation Company (SC)/ Reconstruction Company (RC) (Created under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and Related Issues

4. To regulate the prudent working of the ARC/SC companies RBI, as the regulatory authority also formulated guidelines titled The Securitisation Companies/ Reconstruction Companies Prudential Norms (Reserve Bank) Directions, 2002.

The Securitisation Act and the FPCLL Code together with the guidelines of RBI are expected to enforce a sense of needed responsibility and accountability both in the lenders and the borrowers and it is in their interests, hereafter, to work together and tackle their mutual problems amicably.