Defaulters beware! Banking Act Amended In fight against bad loans

May 5, 2017

New Delhi, May 5: The government today gave wide-ranging legislative powers to the Reserve Bank or RBI to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans. The much-awaited ordinance to amend the Banking Regulation Act was promulgated by President Pranab Mukherjee last night.

The Cabinet had earlier given the nod for change in Banking Regulation Act. The stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution, the ordinance said.

Indian banking system is grappling with mounting bad loans which had hit a record $150 billion as of end-December. Ratings agencies have voiced concerns over the levels of bad debts in the banking system. Despite the government's push for a ratings upgrade, ratings agencies have kept India's sovereign rating at the bottom rung of investment grade. Loan growth in the banking system plummeted to a whopping six decadal low of 5.08 per cent in fiscal 2017. The low advances growth is on account of the impaired balance-sheets of banks and weak demand for credit from industries.

The ordinance authorises the "Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016". It has also empowered RBI to issue directions to banks for resolution of stressed assets. RBI has been equipped with powers to specify one or more authorities to advise banks for dealing with the problem of non-performing assets (NPAs).

The law will also empower RBI to set up sector-related oversight panels that will shield bankers from later action by probe by agencies looking into loan recasts.

With the enactment of amendment, RBI will be able to give specific solutions with regard to hair cut for specific cases and also, if required, look at providing relaxation in terms of current guidelines. Finance Minister Arun Jaitley had in March said that the government would consider setting up multiple oversight committees under the RBI to examine the cases of NPAs referred by banks.

"The RBI has made an oversight committee to look into the process of cases referred to it by the different banks," he had said.

The ordinance, which amends Section 35A of the Banking Regulation Act 1949, will have to be placed in Parliament for approval in the upcoming monsoon session.

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‘Pay the worker before his sweat dries’: Madras High Court cites Prophet Muhammad’s teaching while ordering settlement of dues

News Network

December 21,2025

Invoking the teachings of Prophet Muhammad—“pay the worker before his sweat dries”—the Madras High Court has directed a municipal corporation to settle long-pending legal dues owed to a former counsel. The court observed that this principle reflects basic fairness and applies equally to labour and service-related disputes.

Justice G. R. Swaminathan made the observation while hearing a petition filed by advocate P. Thirumalai, who claimed that the Madurai City Municipal Corporation failed to pay him legal fees amounting to ₹13.05 lakh. Earlier, the High Court had asked the corporation to consider his representation. However, a later order rejected a major portion of his claim, prompting the present petition.

The court allowed Thirumalai to approach the District Legal Services Authority (DLSA) and submit a list of cases in which he had appeared. It also directed the corporation to settle the verified fee bills within two months, without interest. The court noted that the petitioner had waited nearly 18 years before challenging the non-payment and that the corporation could not be fully blamed, as the fee bills were not submitted properly.

‘A Matter of Embarrassment’

Justice Swaminathan described it as a “matter of embarrassment” that the State has nearly a dozen Additional Advocate Generals. He observed that appointing too many law officers often leads to unnecessary allocation of work and frequent adjournments, as government counsel claim that senior officers are engaged elsewhere.

He expressed hope that such practices would end at least in the Madurai Bench of the High Court and added that Additional Advocate Generals should “turn a new leaf” from 2026 onwards.

‘Scandalously High Amounts’

While stating that the court cannot examine the exact fees paid to senior counsel or law officers, Justice Swaminathan stressed that good governance requires public funds to be used prudently. He expressed concern over the “scandalously high amounts” paid by government and quasi-government bodies to a few favoured law officers.

In contrast, the court noted that Thirumalai’s total claim was “a pittance” considering the large number of cases he had handled.

Background

Thirumalai served as the standing counsel for the Madurai City Municipal Corporation for more than 14 years, from 1992 to 2006. During this period, he represented the corporation in about 818 cases before the Madurai District Courts.

As the former counsel was unable to hire a clerk to obtain certified copies of judgments in all 818 cases, the court directed the District Legal Services Authority to collect the certified copies within two months. The court further ordered the corporation to bear the cost incurred by the DLSA and deduct that amount from the final settlement payable to the petitioner.

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