Alerts & Updates 12th Oct 2022

Legal updates on the banking sector

Authors

Mukesh Chand Senior Counsel | Mumbai

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  • MEITY clears way for digital form of certain negotiable instruments and power of attorney (in favour of regulated bodies) and sale and mortgage of immovable properties

    As per the provisions of Section 1(4) of the Information Technology Act, 2000 (the Act) read with the First Schedule, ‘negotiable instrument (other than a cheque)’, ‘power-of-attorney’ trust, ‘will’ and contract for sale or conveyance of immovable property cannot be in digital form. Electronic form cheques and truncated cheques are however governed by the Act.

    Now with the GoI’s thrust towards digitization of documents and digital lending process by banks and financial institutions, the Ministry of Electronic and Information Technology (MEITY) vide its notification dated September 26, 2022 has amended the list of documents appearing in the ‘First Schedule’ to the Act. This paves the way for digital form of the following documents if executed or endorsed in favor of entities regulated by the

    (i) Reserve Bank of India (ii) National Housing Bank (iii) Securities and Exchange Board of India (iv) Insurance Regulatory and Development Authority of India (v) Pension Fund Regulatory and Development Authority). The list of documents include:

    • cheque, a Demand Promissory Note, or a Bill of Exchange;
    • power-of attorney.
  • ELP comments
    Exemption though partial (as it leaves out major financial institutions which are set-up under special enactments, and which are not regulated by RBI) will give a thrust to the digital lending process. However, negotiable instruments and power of attorney other than those mentioned in the notification will need to continue to be in physical form.

    Another important feature of the above notification is that it has removed the ‘Entry No. 5’ on account of which the Act was not applicable to instruments of ‘contract for the sale or conveyance of immovable property or any interest in such property’. This paves the way for digital mode of sale. On account of deletion of this entry, digital form of mortgages have also been facilitated.

    ELP comments
    Mortgage transactions form a large part of security creation process in bank lending as it involves a lengthy due diligence process, voluminous mortgage deeds and registration. The digital mode will ease this process especially in home loan transactions and retail banking. It will also enable a 24×7 lending process. However, the above notification may not help where mortgage by deposit of title deeds is to be created under Section 58(f) of the Transfer of Property Act, 1882 as this requires physical delivery of documents of title by the mortgagor to the creditor and that too in a notified town. That being said, since a digital form of mortgage deed is now possible, banks may target selective segment of their lending to be covered under this new regime. Especially LAP, Negotiable Instrument backed lending.
  • Special dedicated DRT benches at Chennai, Delhi and Mumbai to deal with recovery of amount of INR 100 crore and above

    Ministry of Finance (Department of Financial Services) has issued a notification on October 4, 2022, for creation of special Debt Recovery Tribunal (DRT) benches in Chennai, Delhi and Mumbai to deal with the application for recovery of debt involving amount of INR 100 crores and above. These benches will have wider territorial jurisdiction too.

    DRT-1, Chennai Bench: Will have a jurisdiction over such matters which otherwise fall under the jurisdiction of DRT-2, 3 of Chennai and DRTs at Madurai, Bangalore, Ernakulam and Coimbatore.

    DRT-3, Delhi Bench: Will have jurisdiction over such matters which otherwise fall under the jurisdiction of DRT 1 and 2 of Delhi, and DRTs at Jaipur and DRTs 1, 2, and at Chandigarh.

    DRT-1, Mumbai Bench: Will have jurisdiction over such matters which otherwise fall under the jurisdiction over all the applications involving debt amount of INR 100 crores and above, DRT 2 and 3, Mumbai, DRTs at Pune, DRTs 1 and 2 at Ahmedabad, Aurangabad, and Nagpur.

  • ELP comments
    This brings a much needed push for improvement in DRT set up and also incentive for the lenders to take DRT route in large value accounts which otherwise are getting pushed to NCLTs under the Insolvency and Bankruptcy Code, 2016.
  • We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our author:

    Mukesh Chand, Senior Counsel – Email – MukeshChand@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein