Legislating SARFAESI in J&K
There is need to remove some misgivings
Apropos SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities) Act of 2001 in the State of Jammu and Kashmir. The Chief Minister is reported to have said that the enactment of the Act was in the final stages of process.
Newspapers also carried a reaction by Syed Ali Shah Geelani, senior Hurriyat leader, to the statement of the Chief Minister terming it “as an attempt to sell-out Kashmir”. He is reported to have condemned it warning the Government of agitation should it proceed ahead with the enactment. Mr. Geelani has said to have rallied behind Article 370 of the Indian Constitution that confers special status on Jammu and Kashmir State in the Constitutional framework of India.
Steering clear of any political beliefs and affiliations, I find it absolutely imperative to set to rest the misgivings about this important piece of legislation that has done and is doing wonders elsewhere in the country.
To start with, I may very briefly state the objective of SARFEASI Act. As the nomenclature goes, the legislation offers protection to banks against large scale loan defaults. The law envisages quick and hassle free recovery of loan amounts to circumvent what otherwise used to be a long drawn recovery proceedings in the courts, which more often than not would result into the banks either losing the entire loan amount or recovering a part of it at the expense of the interest that it would earn under the terms of agreement governing a secured loan amount. This often lead the banks becoming weary of lending particularly in agriculture and allied sectors where loan defaults were substantial. This position refers to the loan securitisation aspect of the Act .
In the event of take over of assets offered as security under the loan agreement by the borrower, the Act envisages reconstruction of such assets to make these functional and commercially viable for those who would purchase these through a reconstruction company that the Act envisages would be set up for the purpose. This covers the Reconstruction aspect as carried out by the nomenclature.
The entire problem of the SARFAESI Act arises here in so far as the extension of the legislation to the State of Jammu and Kashmir is concerned given its peculiar special status under Article 370 of the Constitution of India. And, it is this matter that seems to be biting the mind of some including the Hurriyat leader who is agitated over the matter.
To say that the extension of the Act is a sell-out is regrettable. That would be taking a position as though the State Government was indifferent to its constitutional obligations, which is not even distantly true. When the SARFEASI Act was first enacted in the Country and the banks attempted to seek recoveries under it, a few loan defaulters (mostly from Jammu ) moved the courts seeking putting such recoveries on hold under the Act in the wake of special status of the State. Over a short span of time, the number of such cases increased and loan defaulters from the valley also took refuge behind this position. The matter thus is sub-judice as correctly stated by the leading Advocate, Mr. Zafar Shah.
The issue first prominently figured in the State Level Bankers Conference (SLBC) a few years back. Ironically, a wrong decision emerged there. The 75th Meeting of the SLBC resolved that a legislation on the pattern of the SARFEASI Act, 2001 be also enacted in the State and, surprisingly, the J&K Bank took then upon the task of preparing a draft legislation on the subject. The Law Department of the Bank toiled hard and prepared a detailed legislation which was somewhat a replica of the Central Act. It was very correctly shot down by the State Law Department which took the view that the State could not legislate on the matter of banking which fell within the domain of the Central List under the Constitution of India.
This was followed by a detailed scrutiny of the matter in the State Law Department, which took the view that some provisions of the Central Act regarding sale, disposal and transfer of land and other properties had to be amended by the Government of India to make these compatible with the State land laws so that only State subjects could purchase or takeover the land and other properties. The matter was brought by the Law Department before the State Cabinet which endorsed the same and decided that the Finance and the Law Departments should take up the matter with the Union Finance and Law Ministries accordingly. In this way, the State Government took adequate precautions of securing the State’s special status.
The matter was taken by the State Government with the Government of India, and a high level team from the State comprising of the Learned Advocate General, the Law Secretary and the undersigned (then as the Special Secretary in the Finance Department) discussed the issues thoroughly with a high level team of Government of India comprising of Union Law and Finance Secretaries and other senior officers of the two ministries in July 2011.
At the meeting the issues were discussed and with an open mind and it ended with the Government of India team fully agreeing to the position taken by the State Government. It was agreed that the Union Finance and Law ministries would be proposing to the Union Cabinet amendments in some provisions of the Central Act to make these compatible with the State land laws so that the State’s Special Status position was not interfered with. The consensus thus followed is the process to which the Chief Minister has perhaps referred. Therefore, “the sell-out” notion or belief is completely misplaced.
Failure to the extension of the Central Legislation is causing huge loss to the people of the State and by one estimate the banks were shirking from investing in the State in the wake of large scale loan defaults and inability of the banks to make recoveries under the extant laws. By one estimate, the banks were withholding investment of Rs 15,000 crore in different sectors of economy adversely affecting investments in tourism, agriculture, micro credit, MSME and other critical sectors with which a bulk of State’s population is associated. This reluctance to lending is one why reason why the banks in the State fall deficient in meeting the prescribed bench mark for credit deposit ratio for which revised target has been fixed by the Governor RBI for banks in the State at 40% than 65% at the country level. It has also thrown out of gear the extent of non performing assets (NPAs) of banks in the State which ideally should be around 1 to 1.5% and is much higher than that making banks less compatible in its industry.
What needs to be clear about the SARFEASI legislation is that it is not J&K specific but applicable all over India. The need for it was felt in the wake of hundreds and thousands of crore of loan amounts that had gone into default and which the banks were finding hard to recover through recovery proceedings in the Courts. The extent of investments and defaults, comparably, in the J&K Staste form a small and rather a negligible percentage of pan-India position. Therefore, the need for such a legislation was more pronounced at the Country level and it will be wrong to assume that this legislation was triggered by the loan defaults in J&K.
What appears a distinct possibility is that Mr. Geelani must have been approached by those willful defaulters who now face recoveries of outstanding loans a certain possibility as soon as the SARFEASI legislation becomes applicable in the State. I can assure Mr. Geelani that the legislation sans any political motive and has economic and financial considerations as the guiding factors in its extension to the State. Thus, there is no need for any worry or agitation over it. He may please take a judicious view of the matter on these premises.
(The author is a former Special Secretary to Government, Finance Department.)
Lastupdate on : Fri, 17 May 2013 21:30:00 Makkah time
Lastupdate on : Fri, 17 May 2013 18:30:00 GMT
Lastupdate on : Sat, 18 May 2013 00:00:00 IST
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