Sources said the contours of the new law are been drawn up by the finance ministry as banks, especially those in the public sector, are dealing with high level of defaults, especially in the infrastructure sector.
NEW DELHI: Amid a pile of bad debt, the government is working on a new legislation for 'wilful defaulters' that seeks to link the jail term with the value of default in a bid to help recover dues from promoters who do refuse to cooperate.
Sources said the contours of the new law are been drawn up by the finance ministry as banks, especially those in the public sector, are dealing with high level of defaults, especially in the infrastructure sector. In its master circular last July, the RBI had said that a borrower will be considered a wilful defaulter if it defaults despite having a capacity to pay, has siphoned-off or diverted funds or disposes of property or assets pledged as security with a bank.
Banks are grappling with non-performing assets of over Rs 2 lakh crore, while loans to several large projects have been restructured, which prevented them from turning bad debt.
Sources said the government intends to focus on high-value defaulters and the new law may be applicable to cases of default of, say, over Rs 100 crore, with nil or negligible security. In case banks declare a borrower a wilful defaulter, they will have the option to initiate criminal proceedings and can also seek a dissolution of the company's board and appoint a new set of directors. These cases are proposed to be tried in special courts, which also have powers to punish for contempt of court. At the same time, to ensure that the loan defaulters do not seek a stay from other courts, the proposed legislation will have a provision that will not allow other courts to take cognizance and grant stay.
Separately, the finance ministry is also discussing ways to improve the effectiveness of the recovery laws, which includes special multi-member debt recovery tribunals (DRTs) to deal with high-value cases and a principal bench in Delhi, while streamlining the procedure of DRTs.
In addition, a proposal to set up six new DRTs is being sent for cabinet approval, while a notification on rationalization of their jurisdiction is in the offing.