SRFAESIA: HC judgment throws co-op banks in a quandary

The recent judgment of Gujarat High Court on securitization Act (SRFAESIA, 2002)has hit cooperative banks badly and has forced them on the course of lengthy arbitration process to recover the unpaid secured loans.

The High Court of Gujarat has passed a verdict in the matter of Shri Dhakdi Group Co-operative Cotton Seed & Others VS Union of India & Others that the cooperative banks cannot use the SRFAESIA, 2002 or securitization act for recovery of debts from its defaulter borrowers. Moreover, the court of law has declared the central govt. notification dated 28th January 2003, bringing the co-op societies within purview of securitization act, as null and void.

Under the Securitization and reconstruction of financial assets and enforcement of security interest Act(SRFAESIA), 2002 the central govt has specified “Cooperative Banks” as defined in clause (cci) of section 5 of the banking regulation act 1949 (10 of 1949) as “bank”, vide S.O. 105(E), dated 28th January, 2003, published in the gazette of India, extra, Pt. II sec 3(ii), dated 28th January 2003.

In the true spirit of the above, the Cooperative Banks has been approaching under SRFAESIA for recovery of the unpaid secured loans as the arbitration is a lengthy process and many a times it is experienced that the result is not supporting at all. However, the legal remedy is always there but it is a lengthy and cumbersome process which the bank does prefer to look into.

“According to the aforesaid judgment, the Securitization Act would not be applicable to cooperative banks under union govt notification of January 2003, as it would be in contradiction with provisions of the Banking Regulation act 1949”, says Rajeev Gupta,CEO of Indraprasth Bank

Now this is a very precarious position left before the cooperative banks for recovery of the secured loans from the defaulter borrowers. On one hand there is a judgment of the Hon’ble High Court of Gujarat under which the cooperative banks cannot approach SRFAESIA and on the other hand there is a lengthy arbitration and the expensive legal process which may not be desirable for the cooperative banks, Gupta underlined.

In view of the above, some of the cases of recovery for which our Bank approached under Securitization Act have been kept in abeyance, he lamented.

“It is, therefore, requested that in the interest of the Cooperative Banks the federation may approach the Court of Law for vacation of the stay or the Govt. of India may be persuaded for the reenactment of the Securitization Act”, Gupta demanded.

Exit mobile version