In this blog post, Brijesh Bhatt, pursuing M.A. in business law from NUJS, Kolkata, discusses the procedure of recovery of money from debts under the Recovery of Debts Due to Banks and Financial Institution Act, 1993.

Origin of RDDBFI Act – An Introduction

Banks and financial institutions duly registered with Reserve Bank of India (RBI) provide loan facility to legal entities and individuals (borrowers). In the event where the borrower fails to repay loan amount or any part thereof which also includes unpaid interests and other charges and/or debt becomes Non-Performing Asset (NPA), banks and financial institutions can recover the debt by approaching appropriate judicial forums.

Before, the enactment of the RDDBFI Act, banks, and financial institutions were facing huge challenges in recovering debts from the borrowers as the courts were overburdened with large numbers of regular cases due to which courts could not accord priority to recovery matters of the banks and financial institutions. The Government of India in 1981 constituted a committee headed by Mr T. Tiwari, this committee suggested a quasi-judicial setup exclusively for banks and financial institutions which by adopting a summary procedure can quickly dispose-off the recovery cases filed by the banks and financial institutions against the borrowers.

Again in 1991, a committee was set up under Mr Narashmam, which endorsed the view of the Mr T. Tiwari Committee and recommended the establishment of quasi-judicial for the speedy recovery of debts. Pursuant to which Government of India enacted the RDDBFI Act. Through, the RDDBFI Act quasi-judicial authorities were constituted, and the procedure was specified for the speedy recovery of debt.

Authorities under RDDBFI Act

Debt Recovery Tribunal

Section 3, provides for the establishment of Debt Recovery Tribunal (DRT), by notification to be issued by the Central Government, for exercising, jurisdiction, powers, and authority conferred on such tribunal under the RDDBFI Act. First DRT was established in Kolkata in the year 1994. Presently 33 DRTs are functioning at various places in India, and 6 more DRTs are also being established[1]. As per section 4, DRT consists of sole member only, known as Presiding Officer. Section 5, provides that a person who has been or is qualified to become District Judge can be appointed as Presiding Office of DRT. Section 6 provides that the terms of the Presiding Office shall end after the expiry of the period of 5 years from the date he enters the office and he will be eligible for reappointment provided he has not attained the age of 65 years.

Debt Recovery Appellate Tribunal

Sections 8 -11 deals with the establishment, qualification, and term of the Chair Person of the Debt Recovery Appellate Tribunal (DRAT). DRAT is established to exercise control and powers conferred under the RDDBFI Act. DRAT consist of sole member to be known as Chair Person. A person is eligible to become a Chair Person, if he has been an or qualified to become a High Court Judge, or has been a member of the Indian Legal Services and held a Grade 1 post as such member for the minimum period of three years or has held office of Presiding Officer of Tribunal for period of at least three years. The Chair Person of DRAT can hold his office for the period of five years and is also eligible for reappointment, provided, that he has not attained the age of seventy years. Presently there are 5 DRATs in India in Delhi, Chennai, Mumbai, Allahabad, and Kolkata. DRAT has appellate and supervisory jurisdiction over DRTs.

Who can recover money from DRT under RDDBFI Act

As per section 1(4), the provisions of RDDBFI Act does not apply where the amount of debt due to the bank or financial institution or the consortium of banks and financial institutions is less than Rupees Ten Lakh or any other amount not below Rupees One Lakh, cases where the central government may by notification specify. Thus, in essence, minimum debt which is to be recovered from DRT should not be less than Rupees Ten Lakh. In the case of SARFESAI Act, if the asset has been declared as Non-Preforming Asset (NPA), eligible banks and financial institutions after enforcing security can recover remaining amount under RDDBFI Act which is in excess, of Rupees One Lakh.

What type of debt can be recovered under the RDDBFI Act

As per section 2 (g) debt is any liability inclusive of interest, which is claimed to due from any person by any bank or financial institution or consortium thereof. Such liability may be secured or unsecured or assigned, whether payable under the order of court or arbitration award or under the mortgage. Such a liability shall be subsisting and validly recoverable on the date of application.

The debt also includes liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrowers by the debenture trustees or any authority in whose favor a security interest is created for the benefit of the holder of the debt security. Clause 2(ga) defines debt security as securities listed in accordance with regulations defined by SEBI under Securities and Exchange Board of India Act, 1992.

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Jurisdiction, Powers, and Authority of DRT and DRAT

As per section 17 of RDDBFI Act, vests jurisdiction, power and authority on DRT to entertain and decide application from banks and financial institutions to recover a debt due to such banks and financial institutions. Further, section 17A confers on DRAT power of general superintendence and control and confers appellate jurisdiction on DRAT. DRAT is also empowered to transfer a case from one DRT to another DRT. DRAT is also empowered to call for information from DRT, about cases pending and disposed of them. DRAT is also empowered to convene the meeting of Presiding Officers. It also empowered to conduct an inquiry of Presiding Officer and recommend suitable action to the Central Government.

Section 18 bars the jurisdiction of any civil court or authority for recovery of debt, except High Court and Supreme Court in the exercise of their writ jurisdiction under Article 226 and 227 of the Constitution of India. Thus in essence order of DRAT can be challenged in writ jurisdiction of High Court or Supreme Court

Procedure for filing cases for recovery of money under RDDBFI Act[2]

Now having understood the basics of RDDBFI Act, including DRT and DRAT, now understand the procedure which is to be followed or the process of recovering money under this Act:

 

Types of pleadings/applications generally filed before DRT

Following are the pleadings which are filed in DRT by the parties

1. Original Application (O.A) refers to the claim filed by the bank or financial institution for recovery of debt from the borrower.
2. Interlocutory Application (I.A) refers to the applications filed during the pendency of the case. Miscellaneous Interlocutory Application (Misc. I.A) refers to applications filed under clause e,g or h of section 22(2) of the RDDBFI Act.
3. Written Statement/ reply refers to defense of the borrower

Application to be filed in local jurisdiction of DRT

An Application has to be filed within the local jurisdiction of relevant DRT, as per section 19(1) of the Act, Application can be filed within the local limit of DRT in whose jurisdiction where:

1. the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding;
2. the defendant voluntarily resides or carries on his business or works for gain;
3. in case there are more than one defendant, at the place where any one of the defendants voluntarily resides or carries on his business or works for gain;
4. where the cause of action wholly or partly arose.

Further, where a bank or a financial institution, which has to recover its debt from any person, has filed an O.A and against the same person another bank or financial institution also has claim to recover its debt, then, the later bank or financial institution may join the applicant bank or financial institution at any stage of the proceedings, before the final order is passed, by making an application to that DRT.

 

Application contents

Along with the Application certified true copies of the documents on which the bank or financial institution is relying in support of its claim needs to be filed. Further, Applicant inter-alia should state the following:

1. Grounds of an application under different heads should be stated concisely;
2. Particulars of debt secured by a security interest in the property or assets belonging to the debtor and estimated value thereof;
3. If the secured assets are not sufficient to cover the debt then the particulars of any other property or assets owned by the debtor should be stated;
4. If the value of other assets is not sufficient to cover the debt, then a prayer must be made requesting for direction to the debtor for disclosing his other property or assets details.

Language and forms of pleading and other formalities

All pleadings shall be done in English or Hindi language. If in the English language then font should be Times New Roman with a font size of 13. There should be double spacing between the lines. Left-hand margin should be 5 centimetres and right-hand margin should be 2.5 centimetres. In all pleadings, legal size (A3) paper should be used.

A paper book is made which should include following:

1. Index in Form 1
2. List of dates and events
3. Pleadings i.e Application
4. Interlocutory Application, if any
5. Affidavit
6. Index of documents/Annexure
7. Original/attested copy of documents
8. Power of attorney/board resolution/ authorization letter
9. Vakaltnanma, if represented by counsel

While filing O.A a copy of the statement of account, certified in accordance with the provisions of the Bankers’ Books Evidence Act, 1891, needs to be filed along with the O.A., stating the rate of interest with a certificate that the interest has been charged at such rate. Also, details of penal interest charged from the borrower needs to be mentioned along with a certificate that the penal interest has not been capitalised.

While submitting torn or small document which is smaller than legal size paper, such documents need to be pasted on legal size paper to ensure that they fit the paper book.

All the pages of the paper book need to be signed, and the name of the person who is signing the pleadings must be written in each page in capital letters. Also, the party can affix digital signature, and in the case of illiterate person thumb impression is affixed, and his/her name be written in capital letters.

All the Annexures/documents should be attested with the following sentence mentioned on each page

“This Annexure is the true copy of the original document”, with all the pages of document duly signed.

One complete set of the paper book needs to be served to the other party.

Fee

While filing O.A or I.A or review or appeal. The fee must be paid by way of Demand or Postal Order in favour of Register, of DRT, payable at the place where DRT is situated. The amount of fee payable is as under:

Application for recovery of debts due under section 19(1) or section 19(2) of the Act   (a) Where amount of debt due is Rs. 10 lakhs   (b) Where the amount of debt due is above Rs. 10 lakhs	Rs. 12 000/-   Rs. 12 000/- plus Rs. 1 000/- for every one lakh rupees of debt due or part thereof in excess of Rs. 10/- lakhs subject to a maximum of Rs. 1 50 000/-
Application to counterclaim under section 19(8) of the Act—   (a) Where the amount of claim made is up to Rs. 10 lakhs   (b) Where the amount of claim made is above Rs. 10 lakhs	Rs. 12 000/-     Rs. 12 000/- plus Rs. 1 000/- for every one lakh rupees or part thereof in excess of Rs. 10 lakhs subject to a maximum of Rs. 1 50 000/-.
Application for Review including review application in respect of the counterclaim   (a) against an interim order   (b) against a final order excluding review for correction of clerical or arithmetical mistakes	Rs. 125/-   -50% of fee payable at rates as applicable to the applications under section 19(1) or 19(8) of the Act subject to a maximum of Rs. 15 000/-
Application for interlocutory order	Rs. 250/-
Appeals against orders of the Recovery Officer   If the amount appealed against is   (i) less than Rs. 10 lakhs   (ii) Rs. 10 lakhs or more but less than Rs. 30 lakhs   (iii) Rs. 30 lakhs or more	Rs. 12 000/-   Rs. 20 000/-   Rs. 30 000/-
Vakaltnama	Rs. 5/-

Presentation/filing of application for recovery

After completing pre-filing formalities as mentioned above, the application can be filed before Registrar or any other officer of DRT as authorised by the Registrar. The application can be filed before 4:30 PM on any working day. The application can also be filed through e-filing.

One presentation of application Registrar or the officer authorised by him shall give diary number, date of filing with his endorsement, to the party filing the application. The application so filed will be securitized by Registrar or the officer authorised by him within 15 days. In the case of defects were found applicant will be given 15 days’ time to remove the deficiency, in case applicant failed to cure the deficiency within the period of 15 days, he can apply for extension and registrar can give him extension subject to a maximum of one month. Even after extension if the applicant fails to cure the defect application will not be registered by the Registrar.

Once all the defects are cured, or there are no defects in the application, Registrar of DRT will get the application/case registered and allot a serial number to the application. Cause list of cases to be listed before Registrar will be placed in board or website of DRT a day before scheduled hearing.

Service of Summon/Notice

The Registrar of DRT or any other officer authorised by Presiding Officer will issue Summon/Notice, which will be served by the applicant to the defendant/respondent. Following the details of the forms in which Summons/Notice was issued:

1. Summons in respect of O.A in Form-3
2. Notice in respect of S.A. in Form-4
3. Notice in respect of an application filed under section 31-A of the Act in Form-5
4. Notice in respect of Misc. I.A. in Form-6
5. Notice in respect of an appeal in Form-7.

The Summon/Notice which also contains the paper book of petition/application is generally served on to the defendant/respondent by hand or registered post with acknowledgement due (AD) or speed post or courier. With the permission, of Registrar, Summon/Notice can also be also sent through email or fax, however, in such event, it must be ensured that defendant/respondent gets a copy of the paper book on the first date of his appearance. If the Summon/Notice is delivered to any adult family member of respondent/defendant at his address, it shall be deemed to be delivered. In case Summon/Notice has been sent through registered post with AD or speed post or courier or email or fax, an affidavit should be filed stating mode of dispatch and the correctness of the address where it was sent. In such case Summon/Notice shall be deemed to be delivered irrespective of the fact delivery acknowledgement has not be received back. If the defendant/respondent is deliberately avoiding the service of the Summons/Notice in that event with the permission of DRT Summon/Notice can be pasted at the visible place of the premises of the respondent/defendant or publication can be made in leading daily newspaper and in both cases service will be deemed to be effected on respondent/defendant. This is also known as substituted service.

Hearing of the case before Presiding Officer

Filing of reply/written statement – Defendant/Respondent within one month from the date of service of Notice/Summon on him is required to file the reply. However, with the permission of DRT respondent/defendant can seek time for filing reply/written statement. Even if in the extended time period the defendant/respondent failed to file his reply then DRT may proceed ex-prate.

The claim of set off /counter claim – Defendant at the first date of hearing can file a claim for set off/counterclaim. He cannot file it afterwards without the permission of DRT. The claim of set off/counterclaim shall have the same effect as a counter suit in any proceedings.

Admission of liability by respondent/defendant – If the respondent/defendant admits his liability, in that event Presiding Officer will pass an order directing respondent/defendant to pay the admitted amount within the period of 30 days from the date of the order of the DRT. If defendant/respondent fails to pay the admitted amount within that period, then Presiding Office may issue a certificate of debt due in terms of section 19 of the Act.

Affidavits- In the case where defendant/respondent denies his obligation, in that event Presiding Office may require the parties to him to prove any fact by filing an affidavit and such affidavits shall be read in the hearing in the manner which DRT deems fit. After filing of the affidavits by the respective parties where it appears to DRT that either the applicant or the defendant/respondent desires the production of a witness for cross-examination and that such witness can be produced and it is necessary for the case, DRT shall for sufficient reasons to be recorded, order the witness to be present for cross-examination, and in the event of the witness does not appears for cross-examination, then, the affidavit shall not be taken into evidence.

Interim Order by DRT

In cases where the applicant apprehends that the borrower may take steps which may frustrate attempt of execution may make an application to DRT along with details of property to be attached and value thereof, and on such application may pass an interim order directing respondent/defendant, directing him to deposit before it amount equivalent to property value or amount which may be sufficient to recover the debt or as and when required by DRT to place before it disposal the property.

Wherever DRT finds it fit, it may also pass following orders;

1. appoint a receiver of the property, before or after the grant of Recovery Certificate (RC);
2. remove any persons from possession or custody of any property;
3. commit the same to custody, management of the receiver;
4. confer power on the receiver to file/defend the suit on behalf of property, or to act in any manner for the improvement of the property;
5. appoint a commissioner for collecting details of defendant/respondent’s property or sale thereof.

Judgment and Recovery Certificate by DRT

DRT after giving both the parties opportunity of hearing and hearing their submissions will within 30 days of the conclusion of such hearing pass its interim or final order. Within 15 days of the passing of the order, DRT will issue RC and forward the same to Recovery Officer. RC will contain the details of the amount to be paid by recovered by the borrower debtor. RC shall have the same effect as the decree of the civil court.

Appeal

An appeal by any aggrieved party against the order of DRT can be filed within the period of 30 days from the date of receipt of the order. No appeal can be filed against any order which has been filed with the consent of the parties. DRAT shall endeavour to dispose-off appeal finally within the period of six months.

Amount to be deposited for filing an appeal – Where the appeal is being preferred by the debtor, who as per the order of DRT is liable to pay money to bank or financial institution at the time of filing appeal is required to deposit before DRAT 50% of the amount he is required to pay as per the order of the DRT. However with the permission of DRAT, this amount can be reduced by DRAT, but reduced amount should not below 25% of the debt amount which Borrower is required to pay as per DRT order.

Recovery of debt by Recovery Officer

After receipt of RC from DRT, Recovery Office will initiate recovery by one or more of following modes:

1. Attachment and sale of movable or immovable property of defendants/debtors;
2. Taking possession of property over which security interest was created or any other property of defendant/debtor and appointing receiver for the management of the same;
3. Arrest of defendant/debtor and his detention in prison;
4. Appointment of receiver for management of movable or immovable property of defendant/debtor;
5. Any other mode as may be prescribed by the central government.

Apart from above modes Recovery Officer may also, direct any person who is liable to pay any amount to defendant/borrower, deduct from such amount the recovery amount, and transfer to the credit of Recovery Officer the amount so deducted. However, Recovery Officer will not deduct any such amount which is exempt from attachment under Code of Civil Procedure, 1908.

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References:

[1] http://drt.gov.in/DebtRT.asp

[2] Source of information is RDDBFI Act and Rules and Regulation made thereunder