7 lakh companies facing debt recovery proceedings, most shut shop
Nearly seven lakh companies have either been shut down or facing debt recovery proceedings under the stringent SARFAESI Act for their failure to repay debt taken from financial institutions and banks. As many as two lakh companies were taken to Debt Recovery Tribunals (DRTs) by banks and financial institutions in the first year itself after the SARFAESI Act was amended by the Modi government in 2016. The largest number of companies, 2.35 lakhs, were taken to the DRTs in the year 2018-19. In all, 6.88 lakh companies have been taken to the DRTs across the country during 2016-17 to 2020-21 period. Though there is no official data available with the Corporate Affairs ministry that how many of these 6.88 lakh companies shut shop due to their failure to repay debt. But official sources say that most of these companies were either declared bankrupt or may vanish from the radar.
The Central Government administers the Secularization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) which allows banks and financial institutions to recover their dues exceeding Rs one lakh by proceeding under its provisions. This act became stringent in 2016 through an amendment brought by the Modi government which allowed secured creditors to take possession over a collateral, against which a loan had been provided, upon a default in repayment. This process is undertaken with the assistance of the District Magistrate, and does not require the intervention of courts or tribunals.
The Modi government is flooded with requests to dilute the stringent SARFAESI Act. However, the same has been ruled out.
Year Debt Recovery cases
2016-17 199,352
2017-18 91,330
2018-2019 2,35,437
2019-20 1,05,523
2020-21 57,331 (provisional)
Total : 688973
