Debt Recovery or Skullduggery?

Public sector banks are misusing the powers under the SARFAESI Act to generate profits at the cost of the micro/small enterprises sector
 
The stated purpose of bank nationalisation was to usher in a welfare State by channelling funds towards agriculture as well as micro/small industries for promoting equity, entrepreneurship, inclusive economic development and employment generation. Priority lending to these sectors was the tool adopted for achieving the goal. Accordingly, the Government and the Reserve Bank have been issuing instructions and guidelines aimed at sustaining micro and small enterprises (MSEs) as engines of economic growth and employment generation at the grassroots level.
 
The Supreme Court strongly endorsed this policy thrust in Mahesh Chandra vs. UP Financial Corporation case (1992) issuing clear directives to banks and FIs to function so as to promote the business potential of the country for the benefit of the people, and endeavour to make small enterprises viable and put them in working condition before initiating coercive action. In short, banks were mandated to be sahayaks (associates), holding the hands of MSEs, which are otherwise subjected to several vicissitudes and risks.
 
Then came the era of reforms and liberalisation, transforming ‘welfare States’ into ‘market entities’. The Supreme Court issued a contrary ruling in the UP Financial Corporation vs. Gem Cap (India) Pvt. Ltd. case (1993), reducing the relationship between banks/FIs and the MSEs to that of mere creditor and debtor, saying that lenders could recover debts by any means.
 
And the laws changed too. Originally, banks had to go to civil courts for recovering their ‘debts-due’. In 1993, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted to expedite adjudication and recovery of debts-due by setting up Debt Recovery Tribunals (DRTs) under the Ministry of Finance (Banking division), manned by bank officials or those owing allegiance to the banking sector.
 
Then came a three-judge bench Supreme Court judgment in Haryana Financial Corporation vs. Jagadamba Oil Mills case (2002), favouring the Gem Cap order over the Mahesh Chandra verdict and worse still, branding most of the sick and struggling entrepreneurs as ‘dishonest and deliberate defaulters’. This became the ‘law of the land’.…READMORE
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About gfilesmagazine

gfiles is the country's first independent magazine written, designed and produced for India's civil services—the vast and formidable network of bureaucracies and public sector organisations that provides continuity and stability to this nation's governance.
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