The Reserve Bank of India (RBI) on Thursday issued the Fair Practices Code for Asset Reconstruction Companies (ARC), stating that these entities must follow transparent and non-discriminatory practices in the acquisition of assets.
Asset Reconstruction Companies buy bad loans from banks to turn them around.
In order to enhance transparency in the process of the sale of secured assets, an invitation for participation in auctions shall be publicly solicited and the process should enable participation of as many prospective buyers as possible. The terms and conditions of such sale may be decided in wider consultation with investors in the security receipts as per the SARFAESI Act 2002 and the spirit of Section 29A of the Insolvency and Bankruptcy Code, 2016 may be followed in dealing with prospective buyers, the central bank said.
“ARC shall follow transparent and non-discriminatory practices in the acquisition of assets. It shall maintain arm’s length distance in the pursuit of transparency,” it said while asking them that FPC should be placed in the public domain for information of all stakeholders.
It has prescribed the minimum regulatory expectation, while each ARC’s board is free to enhance its scope and coverage.
As per the guidelines regarding FPC, ARCs should release all securities on repayment of dues or on the realization of the outstanding amount of loan, subject to any legitimate right or lien for any other claim they may have against the borrower.
In the matter of recovery of loans, ARCs shall not resort to harassment of the debtor. They shall ensure that the staff is adequately trained to deal with customers in an appropriate manner, the RBI said, adding that the ARCs will have to establish a board-approved code of conduct for recovery agents and obtain their undertaking to abide by that code. ARCs, as principals, are responsible for the actions of their recovery agents. The agents must observe strict customer confidentiality.
The ARCs shall ensure that recovery agents are properly trained to handle their responsibilities with care and sensitivity, particularly in respect of aspects such as hours of calling and privacy of customer information. They should ensure that recovery agents do not induce the adoption of uncivilized, unlawful, and questionable behavior or recovery processes.
“ARCs should constitute Grievance Redressal machinery within the organization. The name and contact number of the designated grievance redressal officer of the ARC should be mentioned in the communication with the borrowers. The designated officer should ensure that genuine grievances are redressed promptly. ARCs’ Grievance Redressal Machinery will also deal with the issue relating to services provided by the outsourced agency and recovery agents if any,” the RBI said.
“They should ensure that recovery agents do not induce adoption of uncivilized, unlawful and questionable behavior or recovery process,” the guidelines said.
In the matter of recovery of loans, ARCs should not resort to harassment of the debtor and they should ensure that the staff is adequately trained to deal with customers in an appropriate manner.
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