REGISTERED NO. DL-33004 / 2002

The Gazette of India

EXTRAORDINARY

PART II — Section 2

PUBLISHED BY AUTHORITY

No. 32]

NEW DELHI, FRIDAY, JULY 19, 2002 / ASADHA 28,1924

Separate paging is given to this Part in order that it may be filed as a separate compilation.

LOK SABHA

The following Bills were introduced in Lok Sabha on 19-7-2002.

BILL No. 53 OF 2002

A Bill to regulate securitisation and reconstruction of financial assets and enforcement of

security interest and for matters connected therewith or incidental thereto.

BE it enacted by Parliament in the Fifty-third Year of the Republic of India as

follows:—

CHAPTER!

PRELIMINARY

1. (/) This Act may be called the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002.

Short title,

extent and

commence-

ment.

(2) It extends to the whole of India.

(3) It shall be deemed to have come into force on the 21st day of June, 2002.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

2. (/) In this Act, unless the context otherwise requires,—

(a) "Appellate Tribunal" means a Debts Recovery Appellate Tribunal established

under sub-section (/) of section 8 of the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993;

51 of 1993

(b) "asset reconstruction" means acquisition by any securit.sation company or

reconstruction company of any right or interest of any bank or financial institution in

any financial assistance for the purpose of realisation of such financial assistance;

(/) a banking company; or

(if) a corresponding new bank; or

(/?;) the State Bank of India; or

(/v) a subsidiary bank; or

(v) such other bank which the Central Government may, by notification,

specify for the purposes of this Act;

(d) "banking company" shall have the meaning assigned to it in clause (c) of

section 5 of the Banking Regulation Act, 1949;

10 of !949

(e) "Board" means the Securities and Exchange Board of India established under

section 3 of the Securities and Exchange Board of India Act, 1992;

ll of 1092.

(/) "borrower" means any person who has been granted financial assistance by

any bank or financial institution or who has given any guarantee or created any

mortgage or pledge as security for the financial assistance granted by any bank or

financial institution and includes a person who becomes borrower of a securitisation

company or reconstruction company consequent upon acquisition by it of any rights

or interest of any bank or financial institution in relation to such financial assistance;

(g) "Central Registry" means the registry set up or cause to oe set up under sub-

section (/) of section 20;

(h) "corresponding new bank" shall have the meaning assigned to it in clause

(da) of section 5 of the Banking Regulation Act, 1949;

10 of 1949.

(/) "Debts Recovery Tribunal" means the Tribunal established under sub-section

(1) of section 3 of the Recovery of Debts due to Banks and Financial Institutions Act,

1993;

51 pf 1993.

(j) "default" means non-payment of any principal debt or interest thereon or any

other amount payable by a borrower to any secured creditor consequent upon which

the account of such borrower is classified as non-performing asset in the books of

account of the secured creditor in accordance with the directions or guidelines issued

bv the Reserve Bank;

(k) "financial assistance" means any loan or advance granted or any debentures

or bonds subscribed or any guarantees given or letters of credit established or ,v;y

other credit facility extended by any bank or financial institution;

(1) "financial asset" means debt or receivables and includes—

t^ a claim to any debt or receivables or part thereof, whether secured or

unsecured or

( .) anydebtor .-ec" Mole¹: -cjred by, mortgageof, or charge on, immovable

property, or

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

{Hi) a mortgage, charge, hypothecation or pledge of movable property; or

(h>) any right or interest in the security, whether full or part underlying

such debt or receivables; or

(v) any beneficial interest in property, whethermovable or immovable, or

in such debt, receivables, whether such interest is existing, future, accruing,

conditional or contingent; or

(vi) any financial assistance;

{m) "financial institution" means—

(i) a public Financial institution within the meaning of section 4A of the

Companies Act, 1956;

1 of 1956.

{u) any institution specified by the Central Government under sub-

clause {if) of clause {h) of section 2 of the Recovery of Debts Due to Banks and

Financial Institutions Act, 1993;

51 c 1993

(Hi) the International Finance Corporation established under the

International Finance Corporation (Status, Immunities and Privileges) Act, 1958;

42 of 1958.

(iv) any other institution or non-banking financial company as defined in

clause if) of section 45-1 of the Reserve Bank of India Act, 1934, which the

Central Government may, by notification, specify as financial institution for the

purposes of this Act;

2 of 1934.

. (ri) "hypothecation means a charge in or upon any movable property, existing

or future, created by a borrower in favour of a secured creditor without delivery of

possession of the movable property to such creditor, as a security for financial assistance

and includes floating charge and crystallisation of such charge into fixed charge on

movable property;

(o) "non-performing asset" means an asset or account of a borrower, which has

been classified by a bank or financial institution as sub-standard, doubtful or loss

asset, in accordance with the directions or under guidelines relating to assets

classifications issued by the Reserve Bank;

(p) "notification" means a notification published in the Official Gazette;

{q) "obligor" means a person liable to ihe originator, whether under a contract or

otherwise, to pay a financial asset or to discharge any obligation in respect of a

financial asset, whether existing, future, conditional or contingent and includes the

borrower;

(r) "originator" means the owner of a financial asset which is acquired by a

securitisation company or reconstruction company for the purpose of securitisation

or asset reconstruction;

(.?) "prescribed" means prescribed by rules made under this Act;

(/) "property" means—

(0 immovable property;

(//) movable property;

(Hi) any debt or any right to receive payment of money, whether secured

or unsecured;

(rv) receivables, whether existing or future;

(v) intangible assets, being know-how, patent, copyright, trade mark,

licence, franchise or any other business or commercial right of similar nature;

THE GAZETTEOF INDIA EXTRAORDINARY

[PARTH—

(u) "qualified institutional buyer" means a financial institution, insurance

company, bank, state financial corporation, state industrial development corporation,

trustee or any asset management company making investment on behalf of mutual

fund or provident fund or gratuity fund or pension fund or a foreign institutional

investor registered under the Securities and Exchange Board of India Act, 1992 or

regulations made thereunder, or any other bojly corporate as may be specified by the

Board;

IS of 1992.

(v) "reconstruction company" means a company formed and registered under

the Companies Act, 1956 for the purpose of asset reconstruction;

1 of 1956.

(w) "Registrar of Companies" means the Registrar defined in clause (40) of

section 2 of the Companies Act, 1956;

1 of 1956.

(x) "Reserve Bank" means the Reserve Bank of India constituted under section

3 of the Reserve Bank of India Act, 1934;

2 of 1934.

0) "scheme" means a scheme inviting subscription to security receipts proposed

to be issued by a securitisation company or reconstruction company under that scheme;

(z) "securitisation" means acquisition of financial assets by any securitisation

company or reconstruction company from any originator, whether by raising of funds

by such securitisation company or reconstruction company from qualified institutional

buyers by issue of security receipts representing undivided interest in such financial

assets or otherwise;

(za) "securitisation company" means any company formed and registered under

the Companies Act, 1956 for the purpose of securitisation;

1 of 1956.

(zb) security agreement means an agreement, instrument or any omer document

or arrangement under which security interest is created in favour of the secured creditor

including the creation of mortgage by deposit of title deeds with the secured creditor;

(zc) "secured asset" means the property on which security interest is created;

(zd) "secured creditor" means any bank or financial institution or any consortium

or group of banks or financial institutions and includes—

(/") debenture trustee appointed by any bank or financial institution; or

(//) securitisation company or reconstruction company; or

(Hi) any other trustee holding securities on behalf of a bank or financial

institution,

in whose favour security interest is created for due repayment by any borrower of any

financial assistance;

(ze) "secured debt" means a debt which is secured by any security interest;

(zf) "security interest" means right, title and interest of any kind whatsoever

upon property, created in favour of any secured creditor and includes any mortgage,

charge, hypothecation, assignment other than those specified in section 31;

(zg) "security receipt" means a receipt or other security, issued by a securitisation

company or reconstruction company to any qualified institutional buyer pursuant to a

scheme, evidencing the purchase or acquisition by theholder thereof, of an undivided

right, title or interest in the financial asset involved in securitisation;

(zh) "sponsor" means any person holding not less than ten per cent, of the paid-

up equity capital of a securitisation company or reconstruction company;

(zi) "State Bank of India" means the StatejBank of India constituted under

section 3 of the State Bank of India Act. 1955;

23 of 1955.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

(zf) "subsidiary bank" shall have the meaning assigned to it in clause (A) of

section 2 of the State Bank of India (Subsidiary Banks) Act, 1959.

38 of 1959.

(2) Words and expressions used and not defined in this Act but defined in the Indian

Contract Act, 1872 or the Transfer of Property Act, 1882 or the Companies Act, 1956 or the

Securities and Exchange Board of India Act, 1992 shall have the same meanings respectively

assigned to them in those Acts.

9 of 1872.

4 of 1882.

1 of 1956.

15 of 1992.

CHAPTER H

REGULATION OF SECURTTISATION AND RECONSTRUCTION OF FINANCIAL ASSETS OF BANKS AND

FINANCIAL INSTTRUTIONS

3. (/} No secuntisation company or reconstruction company shall commence or carry

on the business of secuntisation or asset reconstruction without—

Registration

sccuritlsation

companies or

reconstruction

companies.

(a) obtaining a certiticate ot registration granted under this section; and

(/>) having the owned fund of not less than two crore rupees or such other

amount not exceeding fifteen per cent, of total financial assets acquired or to be

acquired by the secuntisation company or reconstruction company, as the Reserve

Bank may, by notification, specify:

Provided that the Reserve Bank may, by notification, specify different amounts of

owned fund for different class or classes of securitisation companies or reconstruction

companies:

Provided further that a securitisation company or reconstruction company, existing on

the commencement of this Act, shall make an application for registration to the Reserve Bank

before the expiry of six months from such commencement and notwithstanding anything

contained in this sub-section may continue to carry on the business of securitisation or

asset reconstruction until a certificate of registration is granted to it or, as the case may be,

rejection of application for registration is communicated to it.

(2) Every securitisation company or reconstruction company shall make an application

for registration to the Reserve Bank in such form and manner as it may specify.

(3) The Reserve Bank may, for the purpose of considering the application for registration

of a securitisation company or reconstruction company to commence or cany on the business

of securitisation or asset reconstruction, as the case may be, require to be satisfied, by an

inspection of records or books of such securitisation company or reconstruction company,

or otherwise, that the following conditions are fulfilled, namely:—

(a) that the securitisation company or reconstruction company has not incurred

losses in any of the three preceding financial years;

(Z>) that such securitisation company or reconstruction company has made

adequate arrangements for realisation of the financial assets acquired for the purpose

of securitisation or asset reconstruction and shall be able to pay periodical returns and

redeem on respective due dates on the investments made in the company by the

qualified institutional buyers or other persons;

adequate professional experience in matters related to finance, securitisation and

reconstruction;

(d) that the board of directors of such securitisation company or reconstruction

company does not consist of more than half of its total number of directors who are

either nominees of any sponsor or associated in any manner with the sponsor or any

of its subsidiaries;

(e) that any of its directors has not been convicted of any offence involving

moral turpitude;

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

(/) that a sponsor, is not a holding company of the securitisation company or

reconstruction company, as the case may be, or, does not otherwise hold any controlling

interest in such securitisation company or reconstruction company;

(g) that securitisation company or reconstruction company has complied with or

is in a position to comply with prudential norms specified by the Reserve Bank.

(4) The Reserve Bank may, after being satisfied that the conditions specified in sub-

section (3) are fulfilled, grant a certificate of registration to the securitisation company or the

reconstruction company to commence or carry on business of securitisation or asset

reconstruction, subject to such conditions, which it may consider, fit to impose.

(5) The Reserve Bank may reject the application made under sub-section (2) if it is

satisfied that the conditions specified in sub-section (J) are not fulfilled:

Provided that before rejecting the application, the applicant shall be given a reasonable

opportunity of being heard.

(6) Every securitisation company or reconstruction company, shall obtain prior approval

of the Reserve Bank for any substantial change in its management or change of location of

its registered office or change in its name:

Provided that the decision of the Reserve Bank, whether the change in management of

a securitisation company or a reconstruction company is a substantial change in its

management or not, shall be final.

Explanation.—For the purposes of this section, the expression "substantial change

in management" means the change in the management by way of transfer of shares or

amalgamation or transfer of the business of the company.

4. (7) The Reserve Bank may cancel a certificate of registration granted to a securitisation

company or a reconstruction company, if such company—

Cancellation

of certificate

registration.

(a) ceases to carry on the business ot securitisation or asset reconstruction; or

(A) ceases to receive or hold any investment from a qualified institutional buyer;

registration has been granted to it; or

(d) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g)

of sub-section (3) of section 3; or

(e) fails to—

(/) comply with any direction issued by the Reserve Bank under the

provisions of this Act; or

(if) maintain accounts in accordance with the requirements of any law or

any direction or order issued by the Reserve Bank under the provisions of this

Act; or

(Hi) submit or offer for inspection its books of account or other relevant

documents when so demanded by the Reserve Bank; or

(/v) obtain prior approval of the Reserve Bank required under sub-section

(r5) of section 3:

Provided that before cancelling a certificate of registration on the ground that the

securitisation company or reconstruction company has failed to comply with the provisions

of clause (c) or has failed to fulfil any of the conditions referred to in clause (d) or sub-clause

(iv) of clause (e), the Reserve Bank, unless it is of the opinion that the delay in cancelling the

certificate of registration granted under sub-section (4) of section 3 shall be prejudicial to the

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

public interest or the interests of the investors or the securitisation company or the

reconstruction company, shall give an opportunity to such company on such terms as the

Reserve Bank may specify for taking necessary steps to comply with such provisions or

fulfilment of such conditions.

(2) A securitisation company or reconstruction company aggrieved by the order of

rejection of application for registration or cancellation of certificate of registration may prefer

an appeal, within a period of thirty days from the date on which such order of rejection or

cancellation is communicated to it, to the Central Government:

Provided that before rejecting an appeal such company shall be given a reasonable

opportunity of being heard.

(i) A securitisation company or reconstruction company, which is holding

investments of qualified institutional buyers and whose application for grant of

certificate of registration has been rejected or certificate of registration has been

cancelled shall, notwithstanding such rejection or cancellation be deemed to be a

securitisation company or reconstruction companv until it repays the entire investments

held by it (together with interest, if any) within suc'n enod as the Reserve Bank may

direct.

5. (/) Notwithstanding anything contained in any . ;',:cen;;;ii or any other law for the

time being in force, any securitisation company or reconstruction company may acquire

financial assets of any bank or financial institution,—

Acquisition

of rights or

interest In

financial

assets

(a) by issuing a debenture or bond or any othi. ;,ecum ,.: the nature of uebenture,

for consideration agreed upon between such conipany and the bank or financial

institution, incorporating therein such'terms and (onditions as may be agreed upon

between them; or

(A) by entering into an agreement wit!' such^v>ank or <"nanciai institution for the

transfer of such financial assets to such company on such terms and conditions as

may be agreed upon between them.

(2) If the bank or financial institution is a lender in relation to any financial assets

acquired under sub-section (/) by the securitisation company or the reconsf uction

company, such securitisation company or reconstruction company shall, on such

acquisition, be deemed to be the lender and all the rights of such bank or^r:iancial

institution shall vest in such company in relation to such financial assets.

(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds,

agreements, powers-of-attorney, grants of legal representation, permissions, approvals,

consents or no-objections under any law or otherwise and other instruments of whatever

nature which relate to the said financial asset and which are subsisting or having effect

immediately before the acquisition of financial asset under sub-section (/) and to which

the concerned bank or financial institution is a party or which are in favour of such bank

or financial institution shall, after the acquisition of the financial assets, be of as full

force and effect against or in favour of the securitisation company or reconstruction

company, as the case may be, and may be enforced or acted upon as fully and effectually

as if, in the place of the said bank or financial institution, securitisation company or

reconstruction company, as the case may be, had been a party thereto or as if they had

been issued in favour of securitisation company or reconstruction company, ,is the case

may be.

(4) If, on the date of acquisition of financial asset under sub-section (/), any suit,

appeal or other proceeding of whatever nature relating to the said financial asset is pending

by or against the bank or financial institution, save as provided in the ihird proviso'to sub-

section (7) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 the

same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason ol

the acquisition of financial asset by the securitisation company or reconstruction company

as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted

i of 1986

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

and enforced by or against the securitisation company or reconstruction company, as the

case may be.

6. (/) The bank or financial institution may, if it considers appropriate, give a notice of

acquisition of financial assets by any securitisation company or reconstruction company, to

the concerned obligor and any other concerned person and to the concerned registering

authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge,

hypothecation, assignment or other interest created on the financial assets had been

registered.

Notice to

obligor and

discharge of

obligation of

such obligor.

(2) Where a notice of acquisition of financial asset under sub-section (7) is given by a

bank or financial institution, the obligor, on receipt of such notice, shall make payment to the

concerned securitisation company or reconstruction company, as the case may be, and

payment made to such company in discharge of any of the obligations in relation to the

financial asset specified in the notice shall be a full discharge to the obligor making the

payment from all liability in respect of such payment.

(3) Where no notice of acquisition of financial asset under sub-section (/) is given

by any bank or financial institution, any money or other properties subsequently received

by the bank or financial institution, shall constitute monies or properties held in trust for

the benefit of and on behalf of the securitisation company or reconstruction company,

as the case may be, and such bank or financial institution shall hold such payment or

property which shall forthwith be made over or delivered to such securitisation company

or reconstruction company, as the case may be, or its agent duly authorised in this

behalf.

7. (7) Without prejudice to the provisions contained in the Companies Act, 1956, the

Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India

Act, 1992, any securitisation company or reconstruction company, may, after acquisition of

any financial asset under sub-section (7) of section 5, offer security receipts to qualified

institutional buyers (other than by offer to public) for subscription in accordance with the

provisions of those Acts.

Issue of

security by

raising of

receipts or

fUnds by

securitisation

company or

reconstruction

company.

1 of 1956.

42 of 1956.

15 of 1992.

(2) A securitisation company or reconstruction company may raise funds from the

qualified institutional buyers by formulating schemes for acquiring financial assets and shall

keep and maintain separate and distinct accounts in respect of each such scheme for every

financial asset acquired out of investments made by a qualified institutional buyer and

ensure that realisations of such financial asset is held and applied towards redemption of

investments and payment of returns assured on such investments under the relevant scheme.

(5) In the event of non-realisation under sub-section (2) of financial assets, the

qualified institutional buyers of a securitisation company or reconstruction company,

holding security receipts of not less than seventy-five per cent, of the total value of the

security receipts issued by such company, shall be entitled to call a meeting of all the

qualified institutional buyers and every resolution passed in such meeting shall be binding

on the company.

(4) The qualified institutional buyers shall, at a meeting called under sub-section

(3), follow the same procedure, as nearly as possible as is followed at meetings of the

board of directors oFthe securitisation company or reconstruction company, as the case

may be.

8. Notwithstanding anything contained in sub-section (7) of section 17 of the

Registration Act, 1908 —

Exemption

from

registration of

security

receipt.

16 of 1908.

(a) any security receipt issued by the securitisation company or reconstruction

company, as the case may be, under sub-section (7) of section 7, and not creating,

declaring, assigning, limiting or extinguishing any right, title or interest, to or in

immovable property except in so far as it entitles the holder of the security receipt to an

undivided interest afforded by a registered instrument; or

(b) any transfer of security receipts,

shall not require compulsory registration.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

9. Without prejudice to the provisions contained in any other law for the time being in

force, a securitisation company or reconstruction company may, for the purposes of asset

reconstruction, having regard to the guidelines framed by the Reserve Bank in this behalf,

provide for any one or more of the following measures, namely:—

Measures for

assets

reconstruc-

tion.

(a) the proper management of the business of the borrower, by change in, or

take over of, the management of the business of the borrower;

(b) the sale or lease of a part or whole of the business of the borrower;

(c) rescheduling of payment of debts payable by the borrower;

(d) enforcement of security interest in accordance with the provisions of this

Act;

(e) settlement of dues payable by the borrower;

(/) taking possession of secured assets in accordance with the provisions of this

Act.

10. (/) Any securitisation company or reconstruction company registered under

section 3 may—

Other

(Unctions of

securitisation

company or

reconstruction

company.

(a) act as an agent for any bank or financial institution for the purpose of

recovering their dues from the borrower on payment of such fees or charges as may be

mutually agreed upon between the parties;

(b) act as a manager referred to in clause (c) of sub-section (4) of section 13 on

such fee as may be mutually agreed upon between the parties;

Provided that no securitisation company or reconstruction company shall act

as a manager if acting as such gives rise to any pecuniary liability.

(2) Save as otherwise provided in sub-section (1), no securitisation company or re-

construction company which has been granted a certificate of registration under sub-sec-

tion (4) of section 3, shall commence or carry on, without prior approval of the Reserve

Bank, any business other than that of securitisation or asset reconstruction:

Provided that a securitisation company or reconstruction company which is carrying

on, on or before the commencement of this Act, any business other than the business of

securitisation or asset reconstruction or business referred to in sub-section (]), shall cease to

carry on any such business within one year from the date of commencement of this Act.

Explanation— For the purposes of this section, "securitisation company" or

"reconstruction company" does not include its subsidiary.

11. Where any dispute relating to securitisation or reconstruction or non-payment of

any amount due including interest arises amongst any of the parties, namely, the bank, or

financial institution, or securitisation company or reconstruction company or qualified

institutional buyer, such dispute shall be settled by conciliation or arbitration as provided

in the Arbitration and Conciliation Act, 1996, as if the parties to the dispute have consented

in writing for determination of such dispute by conciliation or arbitration and. the provi-

sions of that Act shall apply accordingly.

26 of 1996

Resolution of

disputes.

12. (/) If the Reserve Bank is satisfied that in the public interest or to regulate

financial system of the country to its advantage or to prevent the affairs of any securitisation

company or reconstruction company from being conducted in a manner detrimental to the

interest of investors or in any manner prejudicial to the interest of such securitisation

company or reconstruction companay, il is necessary or expedient so to do, it may determine

the policy and give directions to all or any securitisation company or reconstruction com-

pany in matters relating u> income recognition, accounting standards, making provisions

Power of

Reserve Bank

to determine

policy and

issue

directions

THE GAZETTE OF INDIA EXTRAORDINARY

[PARTII—

for bad and doubtful debts, capital adequacy based on risk weights for assets and also

relating to deployment of funds by the securitisation company or reconstruction company,

as the case may be, and such company shall be bound to follow the policy so determined

and the directions so issued.

(2) Without prejudice to the generality of the power vested under sub-section (7), the

Reserve Bank may give directions to any securitisation company or reconstruction com-

pany generally or to a class of securitisation companies or reconstruction companies or to

any securitisation company or reconstruction company in particular as to—

(a) the type of financial asset of a bank or financial institution which can be

acquired and procedure for acquisition of such assets and valuation thereof;

(b) the aggregate value of financial assets which may be acquired by any

securitisation company or reconstruction company.

CHAPTER III

ENFORCEMENT OF SECURITY INTEREST

13- (7) Notwithstanding anything contained in section 69 or section 69A of the

Transfer of Property Act, 1882, any security interest created in favour of any secured credi- 4

tor may be enforced, without the intervention of the court or tribunal, by such creditor in

accordance with the provisions of this Act.

Enforcement

of security

interest.

(2) Where any borrower, who is under a liability to a secured creditor under a security

agreement, makes any default in repayment of secured debt or any instalment thereof, and

his account in respect of such debt is classified by the secured creditor as non-performing

asset, then, the secured creditor may require the borrower by notice in writing to discharge

in full his liabilities to the secured creditor within sixty days from the date of notice failing

which the secured creditor shall be entitled to exercise all or any of the rights under sub-

section (4).

(3) The notice referred to in sub-section (2) shall give details of the amount payable

by the borrower and the secured assets intended to be enforced by the secured creditor in

the event of non-payment of secured debts by the borrower.

(4) In case the borrower fails to discharge his liability in full within the period speci-

fied in sub-section (2), the secured creditor may take recourse to one or more of the follow-

ing measures to recover his secured debt, namely:—

(a) take possession of the secured assets of the borrower including the right to

transfer by way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the secured assets of the borrower including

the right to transfer by way of lease, assignment or sale and realise the secured asset;

secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any

of the secured assets from the borrower and from whom any money is due or may

become due to the borrower, to pay the secured creditor, so much of the money as is

sufficient to pay the secured debt.

(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the

secured creditor shall give such person a valid discharge as if he has made payment to the

borrower.

(6) Any transfer of secured asset after taking possession thereof or take over qf

management under sub-section (4), by the secured creditor or by the manager on behalf of

the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset

transferred as if the transfer had been made by the owner of such secured asset.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

(7) Where any action has been taken against a borrower under the provisions of sub-

section (4), atl costs, charges and expenses which, in the opinion of the secured creditor,

have been properly incurred by him or any expenses incidental thereto, shall be recoverable

from the borrower and the money which is received by the secured creditor shall, in the

absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in

payment of such costs, charges and expenses and secondly, in discharge of the dues of the

secured creditor and the residue of the money so received shall be paid to the person entitled

thereto in accordance with his rights and interests.

(8) If the dues of the secured creditor together with all costs, charges and expenses

incurred by him are tendered to the secured creditor at any time before the date fixed for sale

or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no

further step shall be taken by him for transfer or sale of that secured asset.

(P) In the case of financing of a financial asset by more than one secured creditors or

joint financing of a financial asset by secured creditors, no secured creditor shall be entitled

to exercise any or all of the rights conferred on him under or pursuant to sub-section (4)

unless exercise of such right is agreed upon by the secured creditors representing not less

than three-fourth in value of the amount outstanding as on a record date and such action

shall be binding on all the secured creditors:

Provided that in the case of a company in liquidation, the amount realised from the

sale of secured assets shall be distributed in accordance with the provisions of section 529A

of the Companies Act, 1956:

l of 1956.

Provided further that in the case of a company being wound up on or after the com-

mencement of this Act, the secured creditor of such company, who opts to realise his

security instead of relinquishing his security and proving his debt under proviso to sub-

section (7) of section 529 of the Companies Act, 1956, may retain the sale proceeds of his

secured assets after depositing the workmen's dues with the liquidator in accordance with

the provisions of section 529A of that Act:

1 of 1956.

Provided also that the liquidator referred to in the second proviso shall intimate the

secured creditor the workmen's dues in accordance with the provisions of section 529A of

the Companies Act, 1956 and in case such workmen's dues cannot be ascertained, the

liquidator shall intimate the estimated amount of workmen's dues under that section to the

secured creditor and in such case the secured creditor may retain the sale proceeds of the

secured assets after depositing the amount of such estimated dues with the liquidator:

1 of 1956.

Provided also that in case the secured creditor deposits the estimated amount of

workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or

entitled to receive the excess amount, if any, deposited by the secured creditor with the

liquidator

Provided also that the secured creditor shall furnish an undertaking to the liquidator

to pay the balance of the workmen's dues, if any.

Explanation.—For the purposes of this sub-section,—

(a) "record date" means the date agreed upon by the secured creditors repre-

senting not less than three-fourth in value of the amount outstanding on such date;

(6) "amount outstanding" shall include principal, interest and any other dues

payable by the borrower to the secured creditor in respect of secured asset as per the

books of account of the secured creditor.

(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds

of the secured assets, the secured creditor may file an application in the form and manner as

may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court,

as the case may be, for recovery of the-balance amount from the borrower.

THEGAZETTEOFINDIAEXTRAORDINARY

[PARTII—

(//) Without prejudice to the rights conferred on the secured creditor under or by this

section, the secured creditor shall be entitled to proceed against the guarantors or sell the

pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-

section (4) in relation to the secured assets under this Act.

(12) The rights of a secured creditor under this Act may be exercised by one or more of

his officers authorised in this behalf in such manner as may be prescribed.

(13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer

by way of sale, lease or otherwise (other than in the ordinary course of his business) any

of his secured assets referred to in the notice, without prior written consent of the secured

creditor.

14. (7) Where the possession of any secured asset is required to be taken by the

secured creditor or if any of the secured asset is required to be sold or transferred by the

secured creditor under the provisions of this Act, the secured creditor may, for the purpose

of taking possession or control of any such secured asset, request, in writing, the Chief

Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured

asset or other documents relating thereto may be situated or found, to take possession

thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate

shall, on such request being made to him—

Chief Metro-

politan Magis-

trate or District

Magistrate to

assist secured

creditor in tak-

ing possession

of secured

asset.

(a) take possession of such asset and documents relating thereto; and

(b) forward such asset and documents to the secured creditor.

(2) For the purpose of securing compliance with the provisions of sub-section

(1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be

taken such steps and use, or cause to be used, such force, as may, in his opinion, be

necessary.

(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in

pursuance of this section shall be called in question in any court or before any authority.

15. (1) When the management of business of a borrower is taken over by a secured

creditor, the secured creditor may, by publishing a notice in a newspaper published in English

language and in a newspaper published in an Indian language in circulation in the place

where the principal office of the borrower is situated, appoint as many persons as it thinks

fit-

Manner and

effect of

takeover of

management.

(a) in a case in which the borrower is a company as defined in the Companies

Act, 1956, to be the directors of that borrower in accordance with the provisions of that

Act; or

1 of 1956

(b) in any other case, to be the administrator of the business of the borrower.

(2) On publication of a notice under sub-section (1),—

(a) in any case where the borrower is a company as defined in the Companies

Act, 1956, all persons holding office as directors of the company and in any other case,

all persons holding any office having power of superintendence, direction and control

of the business of the borrower immediately before the publication of the notice under

sub-section (]), shall be deemed to have vacated their offices as such;

l of 1956.

(b) any contract ot management between me Borrower ana any uircctor or

manager thereof holding office as such immediately before publication of the notice

under sub-section (I), shall be deemed to be terminated;

(c) the directors or the administrators appointed under this section shall take

such steps as may be necessary to take into their custody or under their control all the

property, effects and actionable claims to which the business of the borrower is, or

appears to be, entitled and all the property and effects of the business of the borrower

SEC. 2]

THE0A2ETJTE OF INDIA EXTRAORDINARY

shall be deemed to be in the custody of the directors or administrators, as the case may

be, as from the date of the publication of the notice;

(d) the directors appointed under this section shall, for all purposes, be the

directors of the company of the borrower and such directors or as the case may be, the

administrators appointed under this section, shall alone be entitled to exercise all the

powers of the directors or as the case may be, of the persons exercising powers of

superintendence, direction and control, of the business of the borrower whether such

powers are derived from the memorandum or articles of association of the company of

the borrower or from any other source whatsoever.

(3) Where the management of the business of a borrower, being a company as defined

in the Companies Act, 1956, is taken over by the secured creditor, then, notwithstanding

anything contained in the said Act or in the memorandum or articles of association of such

borrower,—

l of 1956.

(a) it shall not be lawful for the shareholders of such company or any other

person to nominate or appoint any person to be a director of the company;

(b) no resolution passed at any meeting of the shareholders of such company

shall be given effect to unless approved by the secured creditor;

(c) no proceeding for the winding up of such company or for the appointment of

a receiver in respect thereof shall lie in any court, except with the consent of the

secured creditor.

(4) Where the management of the business of a borrower had been taken over by the

secured creditor, the secured creditor shall, on realisation of his debt in full, restore the

management of the business of the borrower to him.

16. (1) Notwithstanding anything to the contrary contained in any contract or in any

other law for the time being in force, no managing director or any other director or a manager

or any person in charge of management of the business of the borrower shall be entitled to

any compensation for the loss of office or for the premature termination under this Act of any

contract of management entered into by him with the borrower.

No compen-

sation to

directors for

loss of office

(2) Nothing contained in sub-section (1) shall affect the right of any such managing

director or any other director or manager of any such person in charge of management to

recover from the business of the borrower, moneys recoverable otherwise than by way of

such compensation.

17. (I) Any person (including borrower), aggrieved by any of the measures referred to

in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under

this Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the

matter within forty-five days from the date on which such measure had been taken.

Right to

appeal

(2) Where an appeal is preferred by a borrower, such appeal shall not be entertained

by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery

Tribunal seventy-five per cent, of the amount claimed in the notice referred to in sub-section

(2) of section 13:

Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing,

waive or reduce the amount to be deposited under this section.

(3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far

as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 and rules made thereunder.

51 of 1993

18. (I) Any person aggrieved, by any order made by the Debts Recovery Tribunal

under section 17, may prefer an appeal to the Appellate Tribunal within thirty days from the

date of receipt of the order of Debts Recovery Tribunal.

Appeal to Ap-

pellate Tribu-

nal

(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may

THEGAZETTEOFINDIAEXTRAORDINARY

[PARTII—

be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 and rules made thereunder.

51 of 1993.

19. If the Debts Recovery Tribunal or the Appellate Tribunal, as the case may be, on

an appeal filed under section 17 or section 18, holds the possession of secured assets by the

secured creditor as wrongful and directs the secured creditor to return such secured assets

to the concerned borrower, such borrower shall be entitled to payment of such compensa-

tion and costs as may be determined by such Tribunal or Appellate Tribunal.

Right of bor-

rower to re-

ceive compen-

sation and costs

In certain cases.

CHAPTER IV

CENTRAL REGISTRY

20. (1) The Central Government may, by notification, set-up or cause to be set up

from such date as It may specify in such notification, a registry to be known as the

Central Registry with its own seal for the purposes of registration of transaction of

securitisation and reconstruction of financial assets and creation of security interest

under this Act

Central

Registry.

(2) The head office of the Central Registry shall be at such place as the Central

Government may specify and for the purpose of facilitating registration of transactions

referred to in sub-section (1), there may be established at such other places as the Central

Government may think fit, branch offices of the Central Registry.

- (3) The Central Government may, by notification, define the territorial limits within

which an office of the Central Registry may exercise its functions.

(4) The provisions of this Act pertaining to the Central Registry shall be in addition

to and not in derogation of any of the provisions contained in the Registration Act, 1908,

the Companies Act, 1956, the Merchant Shipping Act, 1958, the Patents Act, 1970, the

Motor Vehicles Act, 1988 and the Designs Act, 2000 or any other law requiring registration

of charges and shall not affect the priority of charges or validity thereof under those Acts

or laws.

16 of 1908.

1 of 1956.

44 of 1958.

39 of 1970.

59 of 1988.

16 of 2000.

2\.(1) The Central Government may, by notification, appoint a person for the

purpose of registration of transactions relating to securitisation, reconstruction of

financial assets and security interest created over properties, to be known as the Central

Registrar.

Central

"Registrar.

(2) The Central Government may appoint such other officers with such designations

as it thinks fit for the purpose of discharging under the superintendence and direction of

the Central Registrar, such functions of the Central Registrar under this Act as he may,

from time to time, authorise them to discharge.

22. (1) For the purposes of this Act, a record called the Central Register shall be kept

at the head office of the Central Registry for entering the particulars of the transactions

relating to—

securitisation,

reconstruction

and security

interest

transactions.

(a) securitisation of financial assets;

(b) reconstruction of financial assets; and

(c) creation of security interest.

(2) Notwithstanding anything contained in sub-section (1), it shall be lawful for the

Central Registrar to keep the records wholly or partly in computer, floppies, diskettes or in

any other electronic form subject to such safeguards as may be prescribed.

(3) Where such register is maintained wholly or partly in computer, floppies, diskettes

or in any other electronic form, under sub-section (2), any reference in this Act to entry in

the Central Register shall be construed as a reference to any entry as¹ maintained in computer

or in any other electronic form,

SEC. 2]

THE GAZETTEOF INDIA EXTRAORDINARY

(4) The register shall be kept under the control and management of the Central Regis-

trar.

23. The particulars of every transaction of securitisation, asset reconstruction or

creation of security interest shall be filed, with the Central Registrar in the manner and on

payment of such fee as may be prescribed, within thirty days after the date of such transac-

tion or creation of security, by the securitisation company or reconstruction company or the

secured creditor, as the case may be:

Filing of trans-

actions of

securitisation,

reconstruction

and creation

of security

interest.

Provided that the Central Registrar may allow the filing of the particulars of such

transaction or creation of security interest within thirty days next following the expiry of the

said period of thirty days on payment of such additional fee not exceeding ten times the

amount of such fee.

24. Whenever the terms or conditions, or the extent or operation, of any security

interest registered under this Chapter, are, or is, modified, it shall be the duty of the securitisation

company or the reconstruction company or the secured creditor, as the case may be, to send

to the Central Registrar, the particulars of such modification, and the provisions of this

Chapter as to registration of a security interest shall apply to such modification of such

security interest.

Modification

of security

interest

registered

under this

Act.

25. (I) The securitisation company or the reconstruction company or the secured

creditor as the case may be, shall give intimation to the Central Registrar of the payment or

satisfaction in full, of any security interest relating to the securitisation company or the

reconstruction company or the secured creditor and requiring registration under this Chapter,

within thirty days from the date of such payment or satisfaction.

Securitisation

company or

reconstruc-

tion

company or

secured

creditor to

report

satisfaction

of security

Interest.

(2) The Central Registrar shall, on receipt of such intimation, cause a notice to be sent

to the securitisation company or reconstruction company or the secured creditor calling

upon it to show cause within a time not exceeding fourteen days specified in such notice, as

to why payment or satisfaction should not be recorded as intimated to the Central Registrar.

(3) If no cause is shown, the Central Registrar shall order that a memorandum of

satisfaction shall be entered in the Central Register.

(4) If cause is shown, the Central Registrar shall record a note to that effect in the

Central Register, and shall inform the borrower that he has done so.

26. (I) The particulars of securitisation or reconstruction or security interest en-

tered in the Central Register of such transactions kept under section 22 shall be open

during the business hours for inspection by any person on payment of such fee as may be

prescribed.

Right to

inspect

particulars of

securitisation,

reconstruc-

tion and

security

interest

transactions.

(2) The Central Register referred to in sub-section (1) maintained in electronic form,

shall also be open during the business hours for the inspection by any person through

electronic media on payment of such fee as may be prescribed.

CHAPTERV

OFFENCES AND PENALTIES

27. If a default is m a d e -

fa) in filing Sunder section 23, the particulars of every transaction of any

securitisation or asset reconstruction or security interest created by a securitisation

company or reconstruction company or secured creditor; or

Penalties.

(b) in sending under section 24, the particulars of the modification referred to in

that section; or

(c) in giving intimation under section 25,

every company and every officer of the company or the secured creditor and every officer of

the secured creditor who is in default shall be punishable with fine which may extend to five

thousand rupjes for every day during which the default continues.

THEGAZETTEOF1NDIAEXTRAORDINARY

[PARTD—

28. If any securitisation company or reconstruction company fails to comply

with any direction issued by the Reserve Bank under section 12, such company and

every officer of the company who is in default, shall be punishable with fine which

may extend to five lakh rupees and in the case of a continuing offence, with an addi-

tional fine which may extend to ten thousand rupees for every day during which the

default continues.

Penalties for

non-compli-

ance of

direction of

Reserve Bank.

29. If any person contravenes or attempts to contravene or abets the contravention of

the provisions of this Act or of any rules made thereunder, he shall be punishable with

imprisonment for a term which may extend to one year, or with fine, or with both.

Offences.

30. No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of

the First Class shall try any offence punishable under this Act.

Cognizance of

offence.

CHAPTER VI

MISCELLANEOUS

31. The provisions of this Act shall not apply to—

Provisions of

this Act not

to apply in

certain cases.

(a) a lien on any goods, money or security given by or under the Indian Contract

Act, 1872 or the Sale of Goods Act, 1930 or any other law for the time being in force;

9 of 1872.

3 of 1930.

(b) a pledge of movables within the meaning of section 172 of the Indian Contract

Act, 1872;

9 of 1872.

(c) creation of any security in any aircraft as defined in clause (1) of section 2 of

the Aircraft Act, 1934;

24 of 1934

(d) creation of security interest in any vessel as defined in clause (55) of section

3 of the Merchant Shipping Act, 1958;

44 of 1958

(e) any conditional sale, hire-purchase or lease or any other contract in which no

security interest has been created;

(/) any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930;

3 of 1930

(g) any properties not liable to attachment or sale under the first proviso to sub-

section (7) of section 60 of the Code of Civil Procedure, 1908;

5 of 190&

(/») any security interest for securing repayment of any financial asset not ex-

ceeding one lakh rupees;

(/) any security interest created in agricultural land;

(/) any case in which the amount due is less than twenty per cent, of the principal

amount and interest thereon.

32. No suit, prosecution or other legal proceedings shall lie agamst any secured

creditor or any of his officers or manager exercising any of the rights of the secured creditor

or borrower for anything done or omitted to be done in good faith under this Act.

Protection of

action taken in

good faith.

33. (7) Where an offence under this Act has been committed by a company, every

person who at the time the offence was committed was in charge of, and was responsible to,

the company, for the conduct of the business of the company, as well as the company, shall

be deemed to be guilty of the offence and shall be liable to be proceeded against and

punished accordingly:

Offences

companies

Provided that nothing contained in this sub-section shall render any such person

liable to any punishment provided in this Act, if he proves that the offence was committed

without his knowledge or that he had exercised all due diligence to prevent the commission

of such offence.

(2) Notwithstanding anything contained in sub-section (7), where an offence under

this Act has been committed by a company and it is proved that the offence has been

SEC. 2J

THE GAZETTE OF INDIA EXTRAORDINARY

committed with the consent or connivance of, or is attributable to any neglect on the part of,

any director, manager, secretary or other officer of the company, such director, manager,

secretary or other officer shall also be deemed to be guilty of the offence and shall be liable

to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section,—

(or) "company'' means any body corporate and includes a firm or other associa-

tion of individuals; and

(b) "director'', in relation to a firm, means a partner in the firm.

34. No civil court shall have jurisdiction to entertain any suit or proceeding in respect

of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by

or under this Act to determine and no injunction shall be granted by any court or other

authority in respect of any action taken or to be taken in pursuance of any power conferred

by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993.

51 of 1993.

Civil court not

lo have juris-

diction.

35. The provisions of this Act shall have effect, notwithstanding anything inconsis-

tent therewith contained* in any other law for the time being in force or any instrument having

effect by virtue of any such law

The provi-

sions of this

Act to

override

other laws,

36. No secured creditor shall be entitled to take all or any of the measures under sub-

section (4) of section 13, unless his claim in respect of the financial asset is made within the

period of limitation prescribed under the Limitation Act, 1963.

36 of 1963

Limitation.

37. The provisions of this Act or the rules made thereunder shall be in addition to,

and not in derogation of, the Companies Act, 1956, the Securities Contracts (Regulation)

Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 or any other law for the time being in

force.

l of 1956.

42 of 1956.

15 of 1992.

51 of 1993.

Application of

other laws not

barred.

38. (7) The Central Government may, by notification and in the Electronic Gazette as

defined in clause (s) of section 2 of the Information Technology Act, 2000, make rules for

carrying out the provisions of this Act.

21 of 20CD

Power of Cen-

tral Govern-

ment to make

rules.

(2) In particular, and without prejudice to the generality of the foregoing power, such

rules may provide for all or any of the following matters, namely—

(a) the form and manner in which an application may be filed under sub-section

(10) of section 13;

(b) the manner in which the rights of a secured creditor may be exercised by one

or more of his officers under sub-section (72) of section 13;

(2) of section 22;

(d) the manner in which the particulars of every transaction of securitisation

shall be filed under section 23 and fee for filing such transaction;

(e) the fee for inspecting the particulars of transactions kept under section 22

and entered in the Central Register under sub-section (7) of section 26;

(/) the fee for inspecting the Central Register maintained in electronic form under

sub-section (2) of section 26;

(g) any other matter which is required to be, or may be, prescribed, in respect of

which provision is to be, or may be, made by rules.

(3) Every rule made under this Act shall be laid, as soon as may be after it is made,

before each House of Parliament, while it is in session, for a total period of thirty days

which may be comprised in one session or in two or more iuccessiv sessions, and if,

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

before the expiry of the session immediately following the session or the successive

sessions aforesaid, both Houses agree in making any modification in the rule or both

Houses agree that the rule should not be made, the rule shall thereafter have effect only in

such modified form or be of no effect, as the case may be; so, however, that any such

modification or annulment shall be without prejudice to the validity of anything previ-

ously done under that rule.

39. The provisions of sub-sections (2), (3) and (4) of section 20 and sections 21,22,23,

24,25,26 and 27 shall apply after the Central Registry is set up or cause to be set up under

sub-section (/) of section 20.

Certain

provisions of

this Act to

apply after

Central

Registry is set

up or cause to

be set up.

40. (/) If any difficulty arises in giving effect to the provisions of this Act, the Central

Government may, by order published in the Official Gazette, make such provisions not incon-

sistent with the provisions of this Act as may appear to be necessary for removing the

difficulty:

Power to

remove

difficulties.

Provided that no order shall be made under this section after the expiry of a period of

two years from the commencement of this Act.

(2) Every order made under this section shall be laid, as soon as may be after it is made,

before each House of Parliament.

41. The enactments specified in the Schedule shall be amended in the manner speci-

fied therein.

Amendments

to certain

enactments.

42. (/) The Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Ordinance, 2002 is hereby repealed.

Repeal and

Saving

Ord.

2 of 2002.

(2) Notwithstanding such repeal, anything done or any action taken under the said

Ordinance shall be deemed to have been done or taken under the corresponding provisions

of this Act.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

THESCHEDULE

(See section 41)

Year

1956

1986

Act

No.

Short title

The Companies Act, 1956.

The Securities Contracts

(Regulation) Act, 1956.

The Sick Industrial

Companies (Special

Provisions) Act, 1985.

Amendment

In section 4A, in sub-section (7), after clause (vi),

insert the following:—

"(vil) the securitisation company or the

reconstruction company which has obtained a

certificate of registration under sub-section (4) of

section 3 of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security

Interest Act, 2002".

In section 2, in clause (h), after sub-clause (ib),

insert the following:—

"(ic) security receipt as defined in clause {zg) of

section 2 of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Inter-

est Act, 2002".

In section 15, in sub-section (7), after the pro-

viso, insert the following:—

Provided further that no reference shall be made

to the Board for Industrial and Financial Reconstruc-

tion after the commencement of the Securitisation

and Reconstruction of Financial Assets and Enforce-

ment of Security Interest Act, 2002, where financial

assets have been acquired by any securitisation com-

pany or reconstruction company under sub-section

(7) of section 5 of that Act:

Provided also that on or after the commencement

of the SeCuritisation and Reconstruction of Finan-

cial Assets and Enforcement of Security Interest Act,

2002, where a reference is pending before the Board

for Industrial and Financial Reconstruction, such ref-

erence shall abate if the secured creditors, (represent-

ing not less than three-fourth in value of the amount

outstanding against financial assistance disbursed

to the borrower of such secured creditors, have taken

any measures to recover their secured debt under

sub-section (4) of section 13 of that Act."

THE GAZETTE OF INDIA EXTRAORDINARY

[PARTD—

STATEMENT OF OBJECTS AND REASONS

The financial sector has been one of the key drivers in India's efforts to achieve

success in rapidly developing its economy. While the banking industry in India is progres-

sively complying with the international prudential norms and accounting practices, there are

certain areas in which the banking and financial sector do not have a level playing field as

compared to other participants in the financial markets in the world. There is no legal provi-

sion for facilitating securitisation of financial assets of banks and financial institutions.

Further, unlike international banks, the banks and financial institutions in India do not have

power to take possession of securities and sell them. Our existing legal framework relating to

commercial transactions has not kept pace with the changing commercial practices and

financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and

mounting levels of non-performing assets of banks and financial institutions. Narasimham

Committee I and II and Andhyarujina Committee constituted by the Central Government for

the purpose of examining banking sector reforms have considered the need for changes in

the legal system in respect of these areas. These Committees, Inter alia, have suggested

enactment of a new legislation for securitisation and empowering banks and financial

institutions to take possession of the securities and to sell them without the intervention of

the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st

June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement

of security interest and for matters connected therewith or incidental thereto. The provisions

of the Ordinance would enable banks and financial institutions to realise long-term assets,

manage problem of liquidity, asset liability mismatches and improve recovery by exercising

powers to take possession of securities, sell them and reduce non-performing assets by

adopting measures for recovery or reconstruction.

2. It is now proposed to replace the Ordinance by a Bill, which, inter alia, contains

provisions of the Ordinance to provide for—

(a) registration and regulation of securitisation companies or reconstruction

companies by the Reserve Bank of India;

(6) facilitating securitisation of financial assets of banks and financial institu-

tions with or without the benefit of underlying securities;

pany or reconstruction company to acquire financial assets of banks and financial

institutions by issue of debentures or bonds or any other security in the nature of a

debenture;

(d) empowering securitisation companies or reconstruction companies to raise

funds by issue of security receipts to qualified institutional buyers;

(e) facilitating reconstruction of financial assets acquired by exercising powers

of enforcement of securities or change of management or other powers which are

proposed to be conferred on the banks and financial institutions;

(/) declaration of any securitisation company or reconstruction company regis-

tered with the Reserve Bank of India as a public financial institution for the purpose of

section 4A of the Companies Act, 1956;

(g) defining 'security interest' as any type of security including mortgage and

charge on immovable properties given for due repayment of any financial assistance

given by any bank or financial institution;

(h) empowering banks and financial institutions to take possession of securities

given for financial assistance and sell or lease the same or take over management in the

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

event of default, i.e. classification of the borrower's account as non-performing asset

in accordance with the directions given or guidelines issued by the Reserve Bank of

India from time to time;

(0 the rights of a secured creditor to be exercised by one or more of its officers

authorised in this behalf in accordance with the rules made by the Central Government;

(/) an appeal against the action of any bank or financial institution to the concerned

Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery

Tribunal;

(k) setting up or causing to be set up a Central Registry by the Central

Government for the purpose of registration of transactions relating to securitisation,

asset reconstruction and creation of security interest;

(/) application of the proposed legislation initially to banks and financial

institutions and empowerment of the Central Government to extend the application of

the proposed legislation to non-banking financial companies and other entities;

(m) non-application of the proposed legislation to security interests in agricultural

lands, loans not exceeding rupees one lakh and cases where eighty per cent, of the

loans are repaid by the borrower.

2. The Bill seeks to achieve the above objects.

NEW DELHI;

JASWANT SINGH.

The 9th July, 2002.

PRESIDENTS RECOMMENDATION UNDER ARTICLE 117 OF THE CONSTITUTION OF

INDIA

[Copy of letter No. 1/1/2002-BO.I dated the 9th July, 2002 from Shri Jaswant Singh,

Minister of Finance to the Secretary-General, Lok Sabha]

The President, having been informed of the subject matter of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Securities Interest Bill, 2002 has

recommended under article 117(1) of the Constitution the introduction of the Bill in Lok

Sabha.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Notes on clauses

Clause 2.—This clause defines various expressions occurring in the Bill.

Clause 3.— This clause contains provisions relating to registration of securitisation

companies or reconstruction companies.

Sub-clause (1) of this clause provides that no securitisation company or reconstruction

company shall commence or carry on the business of securitisation or asset reconstruction

without obtaining a certificate of registration under the proposed legislation and having the

owned fund of not less than two crore rupees or such other amount not exceeding fifteen per

cent, of total financial assets to be acquired by the securitisation company or reconstruction

company, as the Reserve Bank may, by notification, specify. However, the Reserve Bank has

been empowered to specify different amounts of owned fund for different class or classes of

securitisation companies or reconstruction companies.

The existing securitisation companies and reconstruction companies, have been allowed

to carry on the business of securitisation or asset reconstruction if such companies make an

application for registration to the Roserve Bank before the expiry of six months from the date

of commencement of the proposed legislation until a certificate of registration is granted to

it or its application for registration is rejected and such rejection is communicated to it.

Sub-clause (2) of this clause requires that every securitisation company or

reconstruction company to make an application for registration to the Reserve Bank in such

form and manner as it may specify.

Sub-clause (3) of this clause provides that the Reserve Bank may, for the purpose of

considering the application for registration of a securitisation company or reconstruction

company to commence or carry on the business of securitisation or asset reconstruction, as

the case may be, require to be satisfied by an inspection of records and books of such

securitisation company or reconstruction company or otherwise that the conditions specified

in this sub-clause are fulfilled.

Sub-clause (4) of this clause provides that the Reserve Bank may, after being satisfied

that the conditions specified in sub-clause (3) are fulfilled grant a certificate of registration

to the securitisation company or the reconstruction company to commence or carry on

business of securitisation or asset reconstruction, subject to such conditions, which it may

consider, fit to impose.

Sub-clause (5) of this clause confers power upon the Reserve Bank to reject the

application if it is satisfied thaUonditions specified in sub-clause (3) are not fulfilled. How-

ever before rejecting the application, the applicant shall be given a reasonable opportunity

of being heard

Sub-clause (6) of this clause requires every securitisation company or reconstruction

company to obtain prior approval of the Reserve Bank for any substantial change in its

management (by way oi transfer of shares or amalgamation or transfer of the business of

such company) or change of location of its register ed office or change in its name However,

the decision of ihe Reserve Bank, whether the change in management of a securitisation

company or a reconstruction company is a substantial change in its management or not,

shall be final

Clause '/.--This clause contains provisions for cancellation of certificate of

registration

Sub-clause (1) of this clause, inter aha confers power upon the Reserve Bank to

cancel a certificate of registration granted to a securitisation company or a reconstruc-

tion company i f such company ceases to carry on the business of securitisation or asset

reconstruction or ceases to receive or hoM any investment from a qualified institutional

buyer or if such company has failed to comply with any conditions subject to which

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

the certificate of registration has been granted to it or at any time such company fails to fulfil

any of the conditions referred to in items ( a) to (g) of sub-clause (3) of clause 3 or fails to

comply with any direction issued by the Reserve Bank under the provisions of proposed

legislation; or maintain accounts in accordance with the requirements of any law or any

direction or order issued by the Reserve Bank under the provisions of the proposed legisla-

tion; or submit or offer for inspection its books of account and other relevant documents

when so demanded by the Reserve Bank; or obtain prior approval of the Reserve Bank

required under sub-clause (6) of clause 3.

Sub-clause (2) of this clause allows a securitisation company or reconstruction com-

pany aggrieved by the order of rejection of application for registration or cancellation of

certificate of registration to prefer an appeal to the Central Government. The appeal may be

preferred within a period of thirty days from the date on which such order of rejection or

cancellation is communicated to it.

Sub-clause (3) of this clause provides that securitisation company or reconstruction

company, which is holding investments of qualified institutional buyers and whose applica-

tion for grant of certificate of registration has been rejected or certificate of registration has

been cancelled shall, notwithstanding such rejection or cancellation of certificate of registra-

tion, be deemed to be a securitisation company or reconstruction company until it repays the

entire investments held by it (together with interest, if any) within such period as the Reserve

Bank may direct.

Clause 5.—This clause contains provisions relating to acquisition of rights or inter-

est in financial assets...

Sub-clause (1) of this clause allows any securitisation company or reconstruction

company, notwithstanding anything contained in any agreement or any other law for the

time being in force, to acquire financial assets of any bank or financial institution, by issue of

a debenture or bond or any other security in the nature of debenture, for consideration

agreed upon between such company and the bank or financial institution, incorporating

therein such terms and conditions as may be agreed upon between them. Such assets can

also be acquired by entering into an agreement with such bank or financial institution for

transfer of such financial assets to such company on such terms and conditions as may be

agreed upon between them.

Sub-clause (2) of this clause provides that if the bank or financial institution is a

lender in relation to any financial assets acquired under sub-clause (1) by the securitisation

company or the reconstruction company, such securitisation company or reconstruction

company shall, on such acquisition, be deemed to be the lender and all the rights of such

bank or financial institution shall vest in such company in relation to such financial assets.

Sub-clause (3) of this clause provides that all contracts, deeds, bonds, agrees

ments, powers-of-attomey, grants of legal representation, permissions, approvals, con-

sents or no-objections under any law or otherwise and other instruments of whatever

nature which relate to the said financial asset and which are subsisting or having

effect immediately before the acquisition of financial asset under sub-clause (1) and to

which the concerned bank or financial institution is a party or which are in favour of

such bank or financial institution shall, after the acquisition of financial assets, unless

otherwise expressly provided in the proposed legislation, be of full force and effect

against or in favour of the securitisation company or reconstruction company, as the

case may be, and may be enforced or acted upon as fully and effectually as if, in the

place of the said bank or financial institution, the securitisation company or recon-

struction company, as the case may be, had been a party thereto or as if they had been

issued in favour of securitisation company or reconstruction company, as the case

maybe

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Sub-clause (4) of this clause provides that if, on the date of acquisition of financial

asset under sub-clause (1), any suit, appeal or other proceeding of whatever nature relating

to the said financial asset is pending by or against the bank or financial institution [save as

provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies

(Special Provisions) Act, 1985], the same shall not abate, or be discontinued or be, in any

way, prejudicially affected by reason of the acquisition of financial asset by the securitisaticm

company or reconstruction company, as the case may be, but the suit, appeal or other

proceeding may be continued, prosecuted and enforced by or against the securitisation

company or reconstruction company, as the case may je.

Clause 6.—This clause contains provisions for sending of notice to obligor and

discharge of obligation of such obligor

Sub-clause (1) of this clause provides that the bank or financial institution may, if it

considers appropriate, give a notice of acquisition of financial assets by any securitisation

company or reconstruction company to the concerned obligor and any other concerned

person and to the concerned registering authority (including Registrar of Companies) in

whose jurisdiction the mortgage, charge, hypothecation, assignment or other interest created

on the financial assets had been registered.

Sub-clause (2) of this clause provides that where a notice of acquisition of financial

asset under sub-clause J ) is given oy a bank or financial institution, the obligor, on receipt

of such notice, shall make payment to the concerned securitisation company or reconstruction

company, as the case may be. The parent nade to such company in discharge of any of the

obligations in relation to the financial asset specified in the notice shall be a full discharge to

the obligor making the payment from all liability in respect of such payment.

Sub-clause (3) of this clause provides that where no notice of acquisition of financial

asset under sub-clause (1) is given by any bank or financial institution, any money or other

properties subsequently received by the bank or financial institution, shall constitute monies

or properties held in trust for the benefit of and on behalf of the securitisation company or

reconstruction company, as the case may be. Such bank or financial institution shall hold

such payment or property which shall forthwith be made over and delivered to such

securitisation company or reconstruction company, as the case may be, or its agent duly

authorised in this behalf.

Clause 7.— This clausu atiows issue of security receipts or raising of funds by

securitisation company or reconstruction company.

Sub-clause (1) of this clause provides that any securitisation company or reconstruction

company, may, without prejudice to the pwisions "ontained in the Companies Act, 1956,

the Securities Contracts (Regulation-* \ i° .• the Securities and Exchange Board of India

Act, 1992, after acquisition of any financial a^set under sub-clause (1) of clause 5, offer

security receipts to qualified institutional buyers (other than by offer to public) for subscription

in accordance with the provisions of those Act?

Sub-clause (2) of this clause provides that a securitisation company or reconstruction

company may raise funds from the qualified institutional buyers by formulating schemes for

acquiring financial assets and such secuntiiatror; company or reconstruction company shall

keep and maintain separate and distinct account in respect of each such scheme for every

financial assets acquired out of investments made by the qualified institutional buyers. Such

company shall ensure that realisations of such financial assets are held and applied towards

redemption of investments and the returns assured on such investments under the relevant

scheme.

Sub-clause (3) of this clause provides that in the event of non-realisation of financial

assets, the qualified institutional buyers of a securitisation company or reconstruction

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

company holding security receipts of not less than seventy-five per cent, of the total value

of the security receipts issued by such company, shall be entitled to call the meeting of all the

qualified institutional buyers and every resolution passed in such meeting shall be binding

on the company.

Sub-clause (4) of this clause provides that the qualified institutional buyers shall, at

such meeting called, follow the same procedure, as nearly as possible as is followed at

meetings of the board of directors of the securitisation company or reconstruction company,

as the case may be.

Clause 8.—This clause provides for exemption from registration of security receipt.

This clause, inter-alia, provides that any security receipt issued by the securitisation

company or reconstruction company, or any transfer of the security receipts, notwithstand-

ing anything contained in sub-section (/) of section 17 of the Registration Act, 1908, shall

not require compulsory registration.

Clause 9.—This clause provides for measures for assets reconstruction. It provides

that a securitisation company or reconstruction company may, without prejudice to the

provisions contained in any other law for the time being in force, for the purposes of asset

reconstruction, and having regard to the guidelines framed by the Reserve Bank in this

behalf, provide for any one or more of the measures, namely (a) the proper management of

the business of the borrower, by change in, or take over of the management of the business

of the borrower; (b) the sale or lease of a part or whole of the business of the borrower; (c)

rescheduling of payment of debt payable by the borrower; (d) enforcement of security

interests in accordance with the provisions of the proposed legislation; (e) settlement of

dues payable by the borrower; (f) taking possession of secured assets in accordance with

the provisions of the proposed legislation.

Clause 10.—This clause allows a securitisation company or reconstruction company

to carry on other functions in addition to functions of securitisation or asset reconstruction.

Sub-clause (I) of this clause allows any securitisation company or reconstruction

Company registered under clause 3 to act as an agent for any bank or financial institution for

the purpose of recovering their dues from the borrower on payment of such fees or charges

as may be mutually agreed upon between the parties or act as a manager referred to in item (c)

of sub-clause (4) of clause 13, on such fee as may be mutually agreed upon between the

parties or act as receiver if appointed by any court or tribunal. However, a securitisation

company or reconstruction company cannot act as a manager if acting as such gives rise to

any pecuniary liability.

Sub-clause (2) of this clause provides that no securitisation company or reconstruc-

tion company registered under clause 3, shall, save as otherwise provided in sub-clause (1),

commence or carry on, without prior approval of the Reserve Bank, any business other than

that of securitisation or asset reconstruction. However an existing securitisation company or

reconstruction company, which is already carrying on any business other than the business

of securitisation or asset reconstruction or business referred to in sub-clause (7), shall cease

to carry on any such business within one year from the date of commencement of proposed

legislation.

Clause 11.—This clause contains provisions for resolution of disputes.

This clause provides that where any dispute relating to securitisation or reconstruc-

tion or non-payment of any amount due including interest arises amongst any of the parties,

namely the bank or financial institution or securitisation company or reconstruction com-

pany or qualified institutional buyer, such dispute shall be settled by conciliation or arbitra-

tion as provided in the Arbitration and Conciliation Act, 1996, as if the parties to the dispute

have consented in writing for determination of such dispute by conciliation or arbitration

and the provisions of that Act shall apply accordingly.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Clause 12.—This clause confers power upon the Reserve Bank to determine policy

and issue directions.

Sub-clause (7) of this clause provides that if the Reserve Bank is satisfied that in

the public interest or to regulate financial system of the country to its advantage or to

prevent the affairs of any securitisation company or reconstruction company from being

conducted in a manner detrimental to the interest of investors or in any manner prejudicial

to the interest of such securitisation company or reconstruction company it is necessary

or expedient so to do, it may determine the policy and give directions to all or any

securitisation company or reconstruction company in matters relating to income

recognition, accounting standards, making provisions forbad and doubtful debts, capital

adequacy based on risk weights for assets and also relating to deployment of funds by

the securitisation company or reconstruction company, as the case may be, and such

company shall be bound to follow the policy so determined and the directions so issued.

Sub-clause (2) of this clause confers power upon the Reserve Bank to give

directions to any securitisation company or reconstruction company generally or to a

class of securitisation companies or reconstruction companies or to any securitisation

company or reconstruction company on matters such as the type of financial assets of

the bank or financial institution which can be acquired by it, the procedure for acquisition

of such assets and valuation thereof and the aggregate value of financial assets which

may be acquired by any securitisation company or reconstruction company..

Clause 13.—This clause provides that any security interest created in favour of

any secured creditor may, notwithstanding anything contained in section 69 or section

69 A of the Transfer of Property Act, 18 82, be enforced, without the intervention of the

court or tribunal, by such creditor in accordance with the provisions of the proposed

legislation.

Sub-clause (2) of this clause provides that where any borrower, who is under a

liability to a secured creditor under a security agreement, makes any default in repayment

of secured debt or any instalment thereof, and his account in respect of such debt is

classified by the secured creditor as non-performing asset, then, the secured creditor

may require the borrower by notice in writing to discharge in full his liabilities to the

secured creditor within sixty days from the date of notice failing which the secured

creditor shall be entitled to exercise any or all of the rights under sub-clause (4) of this

clause.

Sub-clause (3) of this clause requires that such notice shall give details of the

amount payable by the borrower and the secured assets intended to be enforced by the

secured creditor in the event of non-payment of secured debts by the borrower,

Sub-clause (4) of this clause confers power upon the secured creditor to take

recourse to one or more of certain measures to recover his secured debt in case the

borrower fails to discharge his liability in full. Such measures may be to (a) take possession

of the secured assets of the borrower including the right to transfer by way of lease,

assignment or sale for realising the secured asset; (b) take over the management of the

secured assets of the borrower including the right to transfer by way of lease, assignment

or sale and realise the secured asset; (c) appoint any person to manage the secured

assets the possession of which has been taken over by the secured creditor; (d) require

at any time by notice in writing, any person who has acquired any of the secured assets

from the borrower and from whom any money is due or may become due to the borrower,

to pay the secured creditor, so much of the money as is sufficient to pay the secured

debt.

Sub-clause (J) of this clause provides that any payment made by any person

referred to in item (d) of sub-clause (4) to the secured creditor shall give such person a

valid discharge as if he has made payment to the borrower.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

Sub-clause (6) of this clause provides that any transfer of secured asset after

taking possession thereof or take over of management under sub-clause (4), by the

secured creditor or by the manager on behalf of the secured creditors shall vest in the

transferee all rights in, or in relation to, the secured asset transferred as if the transfer

has been made by the owner of such secured asset,

Sub-clause (7) of this clause provides that where any action has been taken against

a borrower under the provisions of sub-clause (4), all costs, charges and expenses

which, in the opinion of the secured creditor, have been properly incurred by him or any

expense incidental thereto, shall be recoverable from the borrower. It also provides that

any money which is received by the secured creditor shall, in the absence of any con-

tract to the contrary, be held by him in trust, and shall be applied, firstly, in payment of

such costs, charges and expenses and secondly, in discharge of the dues of the secured

creditor and the residue of the money so received shall be paid to the person entitled

thereto in accordance with his rights and interests.

Sub-clause (5) of this clause provides that if the dues of the secured creditor

together with all costs, charges and expenses incurred by him are tendered to the se-

cured creditor at any time before the date fixed for sale or transfer, the secured asset shall

not be sold or transferred, by the secured creditors and no further step shall be taken by

him for transfer or sale of that secured asset.

Sub-clause (P) of this clause provides that in the case of financing of a financial

asset by more than one secured creditors or joint financing of a financial asset by

secured creditors, no secured creditor shall be entitled to exercise any or all of the rights

conferred on him under or pursuant to sub-clause (4) unless exercise of such right is

agreed upon by the secured creditors representing not less than three fourth in value of

the amount as on a record date and such action shall be binding on all the secured

creditors. The expression "record date" has been defined in the Explanation to this

sub-clause.

However in the case of a company in liquidation, the amount realised from the sale of

secured assets shall be distributed in accordance with the provisions of section 529A of the

Companies Act, 1956. In the case of a company being wound up on or after the commencement

of the proposed legislation, the secured creditor of such company, who opts to realise his

security instead of relinquishing his security and proving his debt under proviso to sub-

section (1) of section 529 of the Companies Act, 1956, may retain the sale proceeds of his

secured assets after depositing the workmen's dues with the liquidator in accordance with the

provision of section 529A of that Act. This clause further provides that the liquidator shall

intimate to the secured creditor the workmen's dues in accordance with the provisions of

section 529A of the Companies Act, 1956. In case such workmen's dues cannot be ascertained,

the liquidator shall intimate the estimated amount of workmen's dues under that section to the

secured creditor and in such case the secured creditor may retain the sale proceeds of the

secured assets after depositing the amount of such estimated dues with the liquidator. In case

the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be

liable to pay the balance of the workmen's dues or shall be entitled to receive the excess

amount, if any, deposited by him with the liquidator. The secured creditor shall also be required

to furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.

Sub-clause (70) of this clause provides that whce dues'of the secured creditor are

not fully satisfied with the sale proceeds of the secured assets, the secured creditor may

file an application in such form and manner as may be prescribed to the Debts Recovery

Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the

balance amount from the borrower.

Sub-clause (11) of this clause provides that secured creditor shall, without

prejudice to the rights conferred on the secured creditor under or by this clause, be

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

entitled to proceed against the guarantors or sell the pledged assets without first taking any

of the measures specified in items (a) to (d) of sur^clause (4) in relation to the secured assets

under the proposed legislation.

Sub-clause (12) of this clause provides that the rights of a secured creditor under

the proposed legislation may be exercised by one or more of his officers authorised in

this behalf in such manner as may be specified by the rules made by the Central

Government.

Sub-clause (13) of this clause provides that no borrower shall, after receipt of

notice referred to in sub-clause (2), transfer by way of sale, lease or otherwise (other

than in the ordinary course of his business) any of his secured assets referred to in the

notice, without prior written consent of the secured creditor.

Clause 14.— This clause contains provisions to enable the secured creditor to

take the assistance of the Chief Metropolitan Magistrate or District Magistrate in taking

possession of secured asset.

Sub-clause (/) of this clause provides that where the possession of any secured

assets is required to be taken by the secured creditor or if any of the secured assets is

required to be sold or transferred by the secured creditor in accordance with the

provisions of the proposed legislation, the secured creditor may, for the purpose of

taking possession or control of any such secured assets, request, in writing, the Chief

Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such

secured assets or other documents relating thereto may be situated or found, to take

possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the

District Magistrate shall, on such request being made to him take possession of such

assets and documents relating thereto and forward such assets and documents to the

secured creditor.

Sub-clause (2) of this clause provides that the Chief Metropolitan Magistrate or

the District Magistrate may take or cause to be taken such steps and use, or cause to be

used, such force, as may, in his opinion, be necessary for the purpose of securing

compliance with the provisions of sub-clause (1).

Sub-clause (3) of this clause provides that no act of the Chief Metropolitan

Magistrate or the District Magistrate done in pursuance of this clause shall be called in

question in any court or before any authority.

Clause 15.—This clause contains provisions relating to the manner and effect of take

over of management of the business of the borrower.

Sub-clause (/) of this clause provides that when the management of business of a

borrower is taken over by the secured creditor, the secured creditor may, by publishing

a notice in a newspaper published in English language and in a newspaper published in

an Indian language in circulation in the place where the principal office of the

borrower is situated, appoint as many persons as it thinks fit (a) to be the directors of the

borrower in case the borrower is a company, in accordance with the provisions of the

Companies Act, 1956, or (b) in any other case, to be the administrator of the business of

the borrower.

Sub-clause (2) of this clause provides that on publication of a notice under

sub-clause (1), where the borrower is a company all persons holding office as directors of

the company and in any other case, all persons holding any office having power of

superintendence, direction and control of the business of the borrower immediately before

the publication of the notice shall be deemed to have vacated their offices as such and any

contract of management between the borrower and any director or manager thereof holding

office as such immediately before publication of the notice shall be deemed to be

terminated. The directors or the administrators appointed under this clause shall take such

steps as may be necessary to take into their custody or under their control all the property, effects

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

and actionable claims to which the business of the borrower is, or appears to be,

entitled and all the property and effects of the business of the borrower shall be deemed

to be in the custody of the directors or administrators, as the case may be, as from the

date of the publication of the notice; the directors appointed under this clause shall, for

all purposes, be the directors of the company of the borrower and such directors or as

the case may be, the administrators appointed under this clause, shall alone be entitled

to exercise all the powers of the directors or as the case may be, of the persons

exercising powers of superintendence, direction and control, of the business of the

borrower whether such powers are derived from the memorandum or articles of

association of the company of the borrower or from any other source whatsoever.

Sub-clause (J) of this clause provides that where the management of the business

of a borrower, being a company as defined in the Companies Act, 1956, is taken over by

the secured creditor, then, notwithstanding anything contained in that Act or in the

memorandum or articles of association of such borrower company it shall not be lawful

for the shareholders of such company or any other person to nominate or appoint any

person to be a director of the company. No resolution passed at any meeting of the

shareholders of such company shall be given effect to unless approved by the secured

creditor and no proceeding for the winding up of such company or for the appointment

of a receiver in respect thereof shall lie in any court, except with the consent of the

secured creditor.

Sub-clause (4) of this clause provides that where the management of the business

of a borrower had been taken over by the secured creditor, the secured creditor shall, on

realisation of his debt in full, restore the management of the business of the borrower to

him.

Clause 16.—This clause contains provisions relating to the compensation to

directors for loss of office.

Sub-clause (I) of this clause provides that no managing director or any other

director or a manager or any person in charge of management of the business of the

borrower shall, notwithstanding.anything to the contrary contained in any contract or in

any other law for the time being in force, be entitled to any compensation for the loss of

office or for the premature termination under the proposed legislation of any contract of

management entered into by him with the borrower.

Sub-clause (2) of this clause provides that provisions contained in sub-clause (7)

shall not affect the right of any such managing director or any other director or manager

or any such person in charge of management to recover from the business of the borrower,

moneys recoverable otherwise than by way of such compensation.

Clause 17.—This clause contains provisions relating to appeal.

Sub-clause (I) of this clause provides that any person (including borrower)

aggrieved by any of the measures referred to in sub-clause {4) of clause 13 taken by the

secured creditor or his authorised officer under the proposed legislation, may prefer an

appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five

days from the date on which such measures had been taken.

Sub-clause (2) of this clause provides that where an appeal is preferred by a

borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless

the borrower has deposited with the Debts Recovery Tribunal seventy-five per cent, of

the amount claimed in the notice referred to in sub-clause (2) of clause 13. However the

Debts Recovery Tribunal has been conferred power to waive or reduce the amount to be

deposited under this clause.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Sub-clause (3) of this clause provides that the Debts Recovery Tribunal shall, as far as

may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 and rules made thereunder.

Clause /#.—This clause contains provisions relating to the appeal to Appellate Tri-

bunal.

Sub-clause (1) of this clause provides that any person aggrieved by any order made

by the Debts Recovery Tribunal under clause 17 may prefer an appeal to the Appellate

Tribunal within thirty days from the date of receipt of the order of the Debts Recovery

Tribunal.

Sub-clause (2) of this clause provides that the Appellate Tribunal shall, as far as may

be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 and rules made thereunder.

Clause 19.—This clause contains provisions relating to the right of borrower to

receive compensation and costs in certain cases.

If the Debts Recovery Tribunal or the Appellate Tribunal holds the possession of

secured assets by the secured creditor as wrongful possession, and directs the secured

creditor to return such secured assets to the concerned borrower, such borrower shall be

entitled to payment of such compensation and costs as may be determined by such Tribunal

or Appellate Tribunal.

Clause 20.—This clause contains provisions relating to the Central Registry.

Sub-clause (I) of this clause provides that the Central Government may by notifica-

tion set-up or cause to be set-up from such date as it may specify in the notification a registry

to be known as the Central Registry for the purpose of registration of transactions of

securitisation and reconstruction of financial assets and creation of security interests the

Central Registry shall have its own seal.

Sub-clause (2) of this clause provides that the head office of the Central Registry shall

be at such place as the Central Government may specify and the Central Government may

also establish branch offices of the Central Registry at such other places as it thinks fit.

Sub-clause (3) of this clause provides that the Central Government may, by notifica-

tion, define the territorial limits Within which an office of the Central Registry may exercise its

functions.

Sub-clause (4) of this clause provides that the provisions of the proposed legislation

pertaining to the Central Registry shall be in addition to and not in derogation of any of the

provisions contained in the Registration Act, 1908, the Companies Act, 1956, the Merchant

Shipping Act, 1958, the Patents Act, 1970, the Motor Vehicles Act, 1988 and the Designs Act,

2000 or any other law requiring registration of charges and shall not affect the priority of

charges or validity thereof under those Acts or laws.

Clause 21.—This clause contains provisions relating to the appointment of the Cen-

tral Registrar.

Sub-clause (I) of this clause provides that the Central Government may, by notifica-

tion, appoint a person to be known as the Central Registrar for the purpose of registration of

transactions relating to securitisation, reconstruction of financial assets and security inter-

ests created over properties.

Sub-clause (2) of this clause provides that the Central Government may appoint such

other officers with such designations as it thinks fit for the purpose of discharging, under the

superintendence and direction of the Central Registrar, such functions of the Central Regis-

trar under the proposed legislation as he may authorise them to discharge.

Clause 22.—This clause contains provisions for keeping of Register of securitisation,

reconstruction and security interests.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

Sub-clause (I) of this clause provides that a record called the Central Register shall be

kept at the head office of the Central Registry for entering the particulars of the transactions

relating to securitisation of financial assets, reconstruction of financial assets and creation

of security interest.

Sub-clause (2) of this clause provides that it shall be lawful for the Central Registrar

to keep the records wholly or partly in computer, floppies, diskettes or in any other elec-

tronic form subject to such safeguards as may be specified by rules made by the Central

Government.

Sub-clause (3) of this clause provides that where such register is maintained wholly

or partly in computer, floppies, diskettes or in any other electronic form, any reference in

proposed legislation to entry in the Central Register shall be construed as a reference to

any entry as maintained in computer or in any other electronic form.

Sub-clause (4) of this clause provides that the Central Register shall be kept under

the control and management of the Central Registrar.

Clause 23.—This clause contains provisions for filing of transactions of

securitisation, reconstruction and creation of security interest.

This clause provides that the particulars of every transaction of securitisation, asset

reconstruction or creation of security interest shall be filed, within thirty days after the

date of such transaction or creation of security, by the securitisation company or recon-

struction company or the secured creditor, as the case may be, with the CentrarRegistrar in

the manner and on payment of such fee as may be specified by rules made by the Central

Government. The Central Registrar has been conferred upon power to allow the filing of

the particulars of such transaction or creation of security within thirty days next following

the expiry of the said period of thirty days on payment of such additional fee not exceeding

ten times the amount of such fee.

Clause 24.—This clause contains provisions relating to the modification of security

interest registered under the proposed legislation. This clause provides that whenever the

terms or conditions, or the extent or operation of any security interest registered are or is

modified, it shall be the duty of the securitisation company or the reconstruction company

or the secured creditor, as the case may be, to send to the Central Registrar, the particulars

of such modification and the provisions relating to registration of a security interest shall

apply to such modification of such security interest.

Clause 2.5.—This clause contains provisions relating to reporting to the Central

Registrar of satisfaction of the security interest by the securitisation company or recon-

struction company or the secured creditor.

Sub-clause (7) of this clause provides that the securitisation company or recon-

struction company or the secured creditor, as the case may be,'shall give intimation to the

Central Registrar of the payment or satisfaction in full, of any security interest relating to

the securitisation company or the reconstruction company or the secured creditors and

requiring registration under the proposed legislation, within thirty days from the date of

such payment or satisfaction.

Sub-clause (2) of this clause provides that the Central Registrar shall, on receipt of

such intimation, cause a notice to be sent to the securitisation company or reconstruction

company or the secured creditors calling upon it to show cause within a time not exceed-

ing fourteen days specified in such notice as to why payment or satisfaction of security

interest should not be recorded as intimated to the Central Registrar.

Sub-clause (i) of this clause provides that if no cause is shown, the Central Regis-

trar shall order that a memorandum of satisfaction shall be entered in the Central Register.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Sub-clause (4) of this clause provides that if cause is shown, the Central Registrar

shall record a note to that effect in the Central Register, and shall inform the borrower that

he has done so.

Clause 26.—This clause contains provisions relating to right to inspect particulars

of securitisation, reconstruction and security interest transactions.

Sub-clause (1) of this clause provides that the particulars of securitisation or recon-

struction or security interest entered in the Central Register of such transactions kept

under clause 22 shall be open during the business hours for inspection by any person on

. payment of such fees as may be specified by rules made by the Central Government.

Sub-clause (2) of this clause provides that the Central Register maintained in elec-

tronic form shall also be open during the business hours for the inspection by any person

through electronic media on payment of, such fee as may be specified by rules made by the

Central Government.

Clause 27.—This clause contains provisions relating to penalties. This clause pro-

vides that if a default is made (a) in filing under clause 23, the particulars of every transac-

tion of any securitisation or asset reconstruction or security interest created by a

securitisation company or reconstruction company or secured creditor; or (b) in sending

under clause 24, the particulars of the modification referred to in that clause; or (c) in

giving intimation under clause 25 to the Central Registrar, every company and every

officer of the company or the secured creditor and every officer of the secured creditor

who is in default shall be punishable with fine which may extend to five thousand rupees

for every day during which the default continues.

Clause 28.—This clause contains provisions relating to penalties for non-compli-

ance of direction of Reserve Bank. If any securitisation company or reconstruction com-

pany fails to comply with any direction issued by the Reserve Bank under clause 12, such

company and every officer of the company who is in default, shall be punishable with fine

which may extend to five lakh rupees and in the case of a continuing offence, with an

additional fine which may extend to ten thousand rupees for every day during which the

default continues.

Clause 29.—This clause contains provisions relating to offences. If any person

contravenes or attempts to contravene or abets the contravention of provisions of the

proposed legislation or of any rules made thereunder, he shall be punishable with

imprisonment for a term which may extend to one year, or with fine, or with both.

Clause 30.—This clause contains provisions relating to cognizance of offence. It

provides that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate

of the First Class shall try any offence punishable under the proposed legislation.

Clause 31.—This clause specifies the cases to which the provisions of the pro-

posed legislation shall not apply. It provides that the provisions of the proposed legisla-

tion shall not apply to (a) a lien on any goods, money or security given by or under the

Indian Contract Act, 1872orthe Sale of Goods Act, 1930 or any other law for the time being

in force; (b) a pledge of movables within the meaning of section 172 of the Indian Contract

Act, 1872; (c) creation of any security in any aircraft as defined in clause (1) of section 2 of

the Aircraft Act, 1934; (d) creation of security interest in any vessel as defined in clause

(55) of section 3 of the Merchant Shipping Act, 1958; (e) any conditional sale, hire-pur-

chase or lease or any other contract in which no security interest has been created; (f) any

rights of unpaid seller under section 47 of the Sale of Goods Act, 1930; (g) any property

not liable to attachment or sale under the first proviso to sub-section (1) of section 60 of the

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

Code of Civil Procedure, 1908; (h) any security interest for securing repayment of any

financial asset not exceeding one lakh rupees; (i) any security interest created in agricul-

tural land; (j) any case in which the amount due is less than twenty per cent, of the

principal amount and interest thereon.

Clause 32.—This clause provides for protection of action taken in good faith. It

provides that no suit, prosecution or other legal proceedings shall lie against any se-

cured creditor or any of his officers or manager exercising any of the rights of the

secured creditor or borrower for anything done or omitted to be done in good faith under

the proposed legislation.

Clause 33.—This clause contains provisions relating to offences by companies.

Sub-clause (1) of this clause provides that where an offence under the proposed

legislation has been committed by a company, every person who at the time the offence

was committed was in charge of, and was responsible to, the company, for the conduct

of the business of the company, as well as the company, shall be deemed to be guilty of

the offence and shall be liable to be proceeded against and punished accordingly. How-

ever such person shall not be liable to such punishment, if he proves that the offence

was committed without his knowledge or that he had exercised all due diligence to

prevent the commission of such offence.

Sub-clause (2) of this clause provides that where an offence under the proposed

legislation has been committed by a company and it is proved that the offence has been

committed with the consent or connivance of, or is attributable to any neglect on the

part of, any director, manager, secretary or other officer of the company, such director,

manager, secretary or other officer shall also be deemed to be guilty of the offence and

shall be liable to be proceeded against and punished accordingly.

Clause 34.—This clause provides that no civil court shall have jurisdiction to

entertain any suit or proceeding in respect of any matter which a Debts Recovery

Tribunal or the Appellate Tribunal is empowered by or under the proposed legislation to

determine and no injunction shall be granted by any court or other authority in respect

of any action taken or to be taken in pursuance of any power conferred by or under the

proposed legislation or under the Recovery of Debts Due to Banks and Financial Insti-

tutions Act, 1993.

Clause 35.—This clause provides that the provisions of the proposed legislation

shall override other laws. It provides that the provisions of the proposed legislation

shall have effect notwithstanding anything inconsistent therewith contained in any

other law for the time being in force or any instrument having effect by virtue of any

such law.

Clause 36.—This clause contains provisions relating to limitation. It provides that

no secured creditor shall be entitled to take any or all of the measures under sub-clause

(4) of clause 13, unless his claim in respect of the financial asset is made within the

period of limitation specified under the Limitation Act, 1963.

Clause 37.—This clause provides that the provisions of the proposed legislation

or the rules made thereunder shall be in addition to, and not in derogation of the Compa-

nies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Ex-

change Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 or any other law for the time being in force.

. Clause 38.—This clause empowers the Central Government to make rules for car-

rying out the provisions of the proposed legislation. Every rule made under the pro-

posed legislation shall be laid before each House of Parliament.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Clause 39.— This clause provides that provisions relating to appointment of Central

Registrar, keeping of Central Register, filing of transactions of securitisation, reconstruction

and creation of security interest, modification of security interest registered under the pro-

posed legislation, to report satisfaction of security interest, inspection of particulars of

securitisation, reconstruction and security interest transaction and penalties for default in

filing the particulars of every transaction of any securitisation or asse* reconstruction or

security interest or sending particulars of modification therefor or giving intimation under

clause 25 shall not apply until the Central Registry is established or cause to be established.

Clause 40.—Sub-clause (1) of this clause empowers the Central Government to issue

orders as may be necessary for removing the difficulties in implementing the provisions of

the proposed legislation. Such orders may be issued within a period of two years from the

date of commencement of the proposed legislation. Sub-clause (2) of this clause provides

that every order made under this clause shall be laid, as soon as may be after it is made,

before each House of Parliament.

Clause 41.—This clause seeks to amend the Companies Act, 1956, the Securities

Contracts (Regulation) Act, 1956 and the Sick industrial Companies (Special Provisions) Act,

1985 in the manner specified therein.

Clause 42.— This clause proposes to repeal the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Ordinance, 2002. It further proposes

o save the things done or action taken under the said Ordinance.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

FINANCIAL MEMORANDUM

Sub-clause (1) of clause 20 of the Bill proposes to set up or cause to be set up a registry

to be known as Central Registry for the purpose of registration of transactions of securitisation,

reconstruction of financial assets and creation of security interest. Sub-clause (2) of clause

20 provides for establishment of head office and branch offices of the Central Registry.

2. Sub-clause (1) of clause 21 proposes that the Central Government may, by notifica-

tion in the Official Gazette, appoint a person for the purposes of registration of transactions

relating to securitisation, reconstruction of financial assets and security interests created

over properties, to be known as Central Registrar. Sub-clause (2) of the said clause empowers

the Central Government to appoint such other officers with such designations as it thinks fit

for the purpose of discharging, under the superintendence and direction of the Central

Registrar, such of his functions as he may, from time to time, authorise them to discharge. It

is estimated that the expenditure for setting up of the Central Registry and its branches will

be approximately to the tune of two crore and fifty lakh rupees. The estimated expenditure for

the payment of salary to the Registrar and such other officers and expenditure towards the

rent of the premises, i.e, of the Central Registry would be to the tune of one crore and fifty

lakh rupees per annum.

3. This Bill, if enacted, will not incur any other recurring or non-recurring expenditure.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 38 of the Bill empowers the Central Government to make rules for carrying out

the provisions of the Bill. The matters in respect of which rules may be made relate, inter alia,

to the form and manner in which an application may be filed under sub-section (10) of section

13; the manner in which the rights of a secured creditor may be exercised by one or more of

his officers under sub-section (12) of section 13; the safeguards subject to which the records

may be kept under sub-section (2) of section 22; the manner in which the particulars of every

transactions of securitisation shall be filed under section 23 and fee for filing such transac-

tion; the fee for inspecting the particulars of transactions kept under section 22 and entered

in the Central Register under sub-section (I) of section 26; the fee for inspecting the Central

which is required to be, or may be, prescribed, in respect of which provision is to be, or may

be, made by rules.

2. The rules made by the Central Government shall be laid, as soon as may be after they

are made, before each House of Parliament.

3. The matters in respect of which rules may be made are generally matters of proce-

dures and administrative detail and it is not practicable to provide for them in the Bill. The

delegation of legislative power is, therefore, of a normal character.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

BILL No. 55 OF 2002

A Bill further to amend the Negotiable Instruments Act, 1881, the Bankers' Books Evidence

Act, 1891 and the Information Technology Act, 2000.

BE it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:—

CHAPTER I

PRELIMINARY

1. (7) This Act may be called the Negotiable Instruments (Amendment and

Miscellaneous Provisions) Act, 2002.

Short title and

commencement.

(2) It shall come into force on such date as the Central Government may, by notification

in the Official Gazette, appoint and different dates may be appointed for different provisions

of this Act.

CHAPTER IT

AMENDMENTS TO THE NEGOTIABLE INSTRUMENTS ACT, 1881

2, For section 6 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the

principal Act), the following section shall be substituted, namely:—

26 of 1881.

Substitution of

new section

lor section 6.

'6. A "cheque" is a bill of exchange drawn on a specified banker and not expressed

to be payable otherwise than on demand and it includes the electronic image of a

truncated cheque and a cheque in the electronic form.

"Cheque"'.

3 8

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

Explanation I.—For the purposes of this section, the expression—

(a) "a cheque in the electronic form" means a cheque which contains the

exact mirror image of a paper cheque, and is generated, written and signed in a

secure system ensuring the minimum safety standards with the use of digital

signature (with or without biometrics signature) and asymmetric crypto system;

(b) "a truncated cheque" means a cheque which is truncated during the

course of a clearing cycle, either by the clearing house or by the bank whether

paying or receiving payment, immediately on generation of an electronic image

for transmission, substituting the further physical movement of the cheque in

writing.

Explanation

II.—For the purposes of this section, the expression "clearing

house" means the clearing house managed by the Reserve Bank of India or a clearing

house recognised as such by the Reserve Bank of India.'.

3. Section 64 of the principal Act shall be re-numbered as sub-section (7) thereof, and

after sub-section (7) as so re-numbered, the following sub-section shall be inserted, namely:—

Amendment

of section 64.

"(2) Notwithstanding anything contained in section 6, where an electronic image

of atruncated cheque is presented for payment, the drawee bank is entitled to demand

any further information regarding the truncated cheque from the bank holding the

truncated cheque in case of any reasonable suspicion about the genuineness of the

apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering

or destruction of the instrument, it is entitled to further demand the presentment of the

truncated cheque itself for verification:

Provided that the truncated cheque so demanded by the drawee bank shall be

retained by it, if the payment is made accordingly.".

4. Section 81 of the principal Act shall be re-numbered as sub-section (7) thereof, and

after sub-section (7) as so re-numbered, the following sub-sections shall be inserted, namely:—

Amendment

of section 81

"(2) Where the cheque is an electronic image of atruncated cheque, even after

the payment the banker who received the payment shall be entitled to retain the

truncated cheque.

(3) A certificate issued on the foot of the printout of the electronic image of a

truncated cheque by the banker who paid the instrument, shall be prima facie proof of

such payment.".

5. Section 89 of the principal Act shall be re-numbered as sub-section (7) thereof, and

after sub-section (7) as so re-numbered, the following sub-sections shall be inserted, namely:—

Amendment

of section 89.

"(2) Where the cheque is an electronic image of a truncated cheque, any difference

in apparent tenor of such electronic image and the truncated cheque shall be a material

alteration and it shall be the duty of the bank or the clearing house, as the case may be,

to ensure the exactness of the apparent tenor of electronic image of the truncated

cheque while truncating and transmitting the image.

(3) Any bank or a clearing house which receives a transmitted electronic image

of a truncated cheque, shall verify from the party who transmitted the image to it, that

the image so transmitted to it and received by it, is exactly the same.".

6. In section 131 of the principal Act, Explanation shall be re-numbered as Explanation

I thereof, and after Explanation I as so re-numbered, the following Explanation shall be

inserted, namely:—

Amendment

of section 131.

"Explanation II.—It shall be the duty of the banker who receives payment

based on an electronic image of a truncated cheque held with him, to verify the prima

facie genuineness of the cheque to be truncated and any fraud, forgery or tampering

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

apparent on the face of the instrument that can be verified with due diligence and

ordinary care.".

7. In section 138 of the principal Act,—

Amendment

of section 138

(a) for the words "a term which may be extended to one year", the words "a term

which may be extended to two years" shall be substituted;

(b) in the proviso, in clause (b), for the words "within fifteen days", the words

"within thirty days" shall be substituted.

8. In section 141 of the principal Act, in sub-section (7), after the proviso, the following

proviso shall be inserted, namely:—

Amendment

of section 141.

"Provided further that where a person is nominated as a Director of a company

by virtue of his holding any office or employment in the Central Government or State

Government or a financial corporation owned or controlled by the Central Government

or the State Government, as the case may be, he shall not be liable for prosecution

under this Chapter.".

9. In section 142 of the principal Act, after clause (b), the following proviso shall be

inserted, namely:—

Amendment

of section 142.

" Provided that the cognizance of a complaint may be taken by the Court after the

prescribed period, if the complainant satisfies the Court that he had sufficient cause

for not making a complaint within such period.".

10. After section 142 of the principal Act, the following sections shall be inserted,

namely:—

Insertion of

new sections

after section

142.

"143. (7) Notwithstanding anything contained in the Code of Criminal Procedure,

1973, all offences under this Chapter shall be tried by a Judicial Magistrate of the first

class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both

inclusive) of the said Code shall, as far as may be, apply to such trials:

2 of 1974.

Power of

Court to try

cases

summarily.

Provided that in the case of any conviction in a summary trial under this section,

it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not

exceeding one year and an amount of fine exceeding five thousand rupees:

Provided further that when at the commencement of, or in the course of, a

summary trial under this section, it appears to the Magistrate that the nature of the

case is such that a sentence of imprisonment for a term exceeding one year may have

to be passed or that it is, for any other reason, undesirable to try the case summarily,

the Magistrate shall after hearing the parties, record an order to that effect and thereafter

recall any witness who may have been examined and proceed to hear or rehear the case

in the manner provided by the said Code.

(2) The trial of a case under this section shall, so far as practicable, consistently

with the interests of justice, be continued from day to day until its conclusion, unless

the Court finds the adjournment of the trial beyond the following day to be necessary

for reasons to be recorded in writing.

(3) Every trial under this section shall be conducted as expeditiously as possible

and an endeavour shall be made to conclude the trial within six months from the date

of filing of the complaint.

144. (7) Notwithstanding anything contained in the Code of Criminal Procedure,

1973, and for the purposes of this Chapter, a Magistrate issuing a summons to an

accused or a witness may direct a copy of summons to be served at the place where

such accused or witness ordinarily resides or carries on business or personally works

Mode of

service of

summons.

THEGAZETTEOFINDIAEXTRAORDINARY

[PARTII—

for gain, by speed post or by such courier services as arc approved by a Court of

Session.

(2) Where an acknowledgment purporting to be signed by the accused or the

witness or an endorsement purported to be made by any person authorised by the

postal department or the courier services that the accused or the witness refused to

take delivery of summons has been received, the Court issuing the summons may

declare that the summons has been duly served.

145. (/) Notwithstanding anything contained in the Code of Criminal Procedure,

1973, the evidence of the complainant may be given by him on affidavit and may,

subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding

under the said Code.

Evidence on

affidavit.

2 of 1974.

(2) The Court may, if it thinks fit, and shall, on the application of the prosecution

or the accused, summon and examine any person giving evidence on affidavit as to the

facts contained therein.

146. The Court shall, in respect of every proceeding under this Chapter, on

production of bank's slip or memo having thereon the official mark denoting that the

cheque has been dishonoured, presume the fact of dishonour of such cheque, unless

and until such fact is disproved.

Bank's slip

prima facie

evidence of

certain facts.

147. Notwithstanding anything contained in the Code of Criminal Procedure,

1973, every offence punishable under this Act shall be compoundable.

Offences to

compoundable.

2 of 1974.

CHAPTERm

AMENDMENT TO THE BANKERS' BOOKS EVIDENCE ACT, 1891

11. In section 2 of the Bankers' Books Evidence Act, 1891,—

Amendment

of section 2.

18 of 1891.

(a) for clause (3), the following clause shall be substituted, namely:—

'(3) "bankers' books" include ledgers, day-books, cash-books, account-

books and all other records used in the ordinary business of the bank, whether

these records are kept in written form or stored in a micro film, magnetic tape or

in any other form of mechanical or electronic data retrieval mechanism, either

onsite or at any offsite location including a back-up or disaster recovery site of

both'."

(6) in clause (5), after sub-clause (b), the following sub-clause shall be inserted,

namely:—

"(c) a printout of any entry in the books of a bank stored in a micro film,

magnetic tape or in any other form of mechanical or electronic data retrieval

mechanism obtained by a mechanical or other process which in itself ensures

the accuracy of such printout as a copy of such entry and such printout contains

the certificate in accordance with the provisions of section 2A.".

CHAPTER IV

AMENDMENTS TO THE INFORMATION TECHNOLOGY ACT, 2000

12. In the Information Technology Act, 2000 (hereinafter referred to as the principal

Act), in section 1, in sub-section (4), for clause (a), the following clause shall be substituted,

namely:—

Amendment

of section 1

21 of 2000.

"(a) a negotiable instrument (other than a cheque) as defined in section 13 of the

Negotiable Instruments Act, 1881;".

26 of 1881.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

13. After section 81 of the principal Act, the following section shall be inserted,

namely:—

Insertion of

new section

8 I A

181 A. (/) The provisions of this Act, for the time being in force, shall apply to, or

in relation to, electronic cheques and the truncated cheques subject to such

modifications and amendments as may be necessary for carrying out the purposes of

the Negotiable Instruments Act, 1881 by the Central Government, in consultation with

the Reserve Bank of India, by notification in the Official-Gazette.

26 of 1881

Application

of the Act to

electronic

cheque and

truncated

cheque

(2) Every notification made by the Central Government under sub-section (/)

shall be laid, as soon as may be after it is made, before each House of Parliament, while

it is in session, for a total period of thirty days which may be comprised in one session

or in two or more successive sessions, and if, before the expiry of the session immediately

following the session or the successive sessions aforesaid, both Houses agree in

making any modification in the notification or both Houses agree that the notification

should not be made, the notification shall thereafter have effect only in such modified

form or be of no effect, as the case may be; so, however, that any such modification or

annulment shall be without prejudice to the validity of anything previously done

under that notification.

Explanation —For the purposes of this Act, the expressions "electronic cheque"

and "truncated cheque" shall have the same meaning as assigned to them in section 6

of the Negotiable Instruments Act, 1881.'.

26 of 1881

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

STATEMENT OF OBJECTS AND REASONS

The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial

Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter

XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of

funds in the account of the drawer of the cheque. These provisions were incorporated with

a view to encourage the culture of use of cheques and enhancing the credibility of the

instrument. The existing provisions in the Negotiable Instruments Act, 1881, namely, sections

138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques.

Not only the punishment provided in the Act has proved to be inadequate, the procedure

prescribed for the Courts to deal with such matters has been found to be cumbersome. The

Courts are unable to dispose of such cases expeditiously in a time bound manner in view of

the procedure contained in the Act.

2. A large number of cases are reported to be pending under sections 138 to 142 of the

Negotiable Instruments Act in various courts in the country. Keeping in view the large

number of complaints under the said Act pending in various courts, a Working Group was

constituted to reveiw section 138 of the Negotiable Instruments Act, 1881 and make

recommendations as to what changes were needed to effectively achieve the purpose of that

section.

3. The recommendations of the Working Group along with other representations from

various institutions and organisations were examined by the Government in consultation

with the Reserve Bank of India and other legal experts, and a Bill, namely, the Negotiable

Instruments (Amendment) Bill, 2001 was introduced in the Lok Sabha on 24th July, 2001. The

Bill was referred to Standing Committee on Finance which made certain recommendations in

its report submitted to Lok Sabha in November, 2001.

4. Keeping in view the recommendations of the Standing Committee on Finance and

other representations, it has been decided to bring out, inter alia, the following amendments

in the Negotiable Instruments Act, 1881, namely:—

(i) to increase the punishment as prescribed under the Act from one year to two

years;

(ii) to increase the period for issue of notice by the payee to the drawer from 15

days to 30 days;

(iii) to provide discretion to the Court to waive the period of one month, which

has been prescribed for taking cognizance of the case under the Act;

(iv) to prescribe procedure for dispensing with preliminary evidence of the

complainant;

(v) to prescribe procedure for servicing of summons to the accused or witness

by the Court through speed post or empanelled private couriers;

(vi) to provide for summary trial of the cases under the Act with a view to

speeding up disposal of cases;

(vii) to make the offences under the Act compoundable;

(viii) to exempt those directors from prosecution under section 141 of the Act

who are nominated as directors of a company by virtue of their holding any office or

employment in the Central Government or State Government or a financial corporation

owned or controlled by the Central Government, or the State Government, as the case

may be;

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

(ix) to provide that the Magistrate trying an offence shall have power to pass

sentence of imprisonment for a term exceeding one year and amount of fine exceeding

five thousand rupees;

(x) to make the Information Technology Act, 2000 applicable to the Negotiable

Instruments Act, 1881 in relation to electronic cheques and truncated cheques subject

to such modifications and amendments as the Central Government, in consultation

with the Reserve Bank of India, considers necessary for carrying out the purposes of

the Act, by notification in the Official Gazette; and

(xi) to amend definitions of "bankers' books" and "certified copy" given in the

Bankers' Books Evidence Act, 1891.

5. The proposed amendments in the Act are aimed at early disposal of cases relating to

dishonour of cheques, enhancing punishment for offenders, introducing electronic image of

a truncated cheque and a cheque in the electronic form as well as exempting an official

nominee director from prosecution under the Negotiable Instruments Act, 1881.

6. The Bill seeks to achieve the above objects.

NEW DELHI;

The 9th July, 2002.

JASWANT SINGH.

G.C.MALHOTRA,

Secretary-Genera¹

PRINTED BY THE MANAGER, GOVFRNMENT OF INDIA PRESS (PLU), MINTO ROAD, NFW DELHI

AND PUBLISHED BY THE CONTROLLER OF PUBLICATIONS, DELHI, 2 0 0 2 .

MGIP(PLU)MRND—2294QI—29-8-2Q02.