In this article, Unnati Arora, currently pursuing the Certificate Course in Investment and Banking Due Diligence at LawSikho discusses the functioning of Debt Recovery Tribunals in India   

Introduction

The banks and financial institutions had been facing problems in recovery of loans advanced by them to individual people or business entities. Due to this, the banks and financial institutions started restraining themselves from advancing out loans. There was a need to have an effective system to recover the money from borrowers. This lead to the formation of Debt Recovery Tribunals (DRTs) after the passing of Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI), 1993. DRTs handle the cases in relation to disputed loans above Rs. 10 lakhs. Debt Recovery Appellate Tribunals (DRATs) deals with the appeals against the order passed by the DRTs. Presently, there are 33 DRTs and 5 DRATs working all over India.

Origin Of Debt Recovery Tribunals

• Pre-DRT Resolution Process

In order for recovery of money from borrowers, the banks and financial institutions had to file a suit in the civil court. The suit was tried and decided as per the provisions of Civil Procedure Code (CPC), 1908 which used to be long and complicated. A committee was formed in 1981 to suggest reforms under the Chairmanship of Mr. T. Tiwari. It was observed by the committee that since the court was burdened with so many cases, importance was not given to cases in relation to the recovery of dues due to banks and financial institutions. The committee suggested different measures one of which was establishing quasi-judicial bodies that would deal only with recovery matters. However, establishing of such bodies was not initiated for about a decade later around Indian financial market and economic liberalization.

• The 1993 RDDBFI Act

In 1991, Narasimham Committee supported the perspectives of the Tiwari Committee and suggested setting up Special Tribunals. The recommendations of Narasimham Committee lead to the enactment of Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), 1993. It established two forms of agencies namely Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) gave upon them extraordinary forces for arbitration of debt recovery matters. The first DRT was inaugurated in  Kolkata on 27th April 1994.

Role of DRTs

The primary objective and role of DRT is the recovery of money from borrowers which is due to financial institutions and banks. The Tribunals power is restricted to try and settle cases recuperation of advances from NPAs as stated by the banks under the RBI guidelines. The Tribunal has all the powers vested with the District Court. The Tribunal also has a Recovery officer who helps in executing the recovery Certificates as passed by the Presiding Officers. DRT followed the proficient legal procedure by emphasizing on speedy disposal of the cases and fast implementation of the final order.

Jurisdiction of DRTs

Section 17 of the RDDBFI Act vests the authority with  DRT to entertain applications from banks and financial institutions for recovery of debts which are due to such banks and financial institutions. Section 18 of the Act bars all other Courts from the adjudication of matters relating to debt recovery apart from the Supreme Court and High Court, exercising jurisdiction under Article 226 and 227 of the Constitution. In other words, relief against the order passed by the DRAT can be pursued only by High Court or Supreme Court.

DRT Process

Filing of Application

An application can be made to DRT either through direct application or through SARFAESI route.

Application Route

The recovery procedure through this way requires making of the application to the DRT and paying off the required fees. DRT location chosen under this route matters. Currently, there are 33 DRTs in 22 locations. Section 19 of the RDDBFI Act mentions the prerequisites for a choice of DRT to make an application. Bank or Financial Institution can make an application to DRT which has jurisdiction in the region to which the financial body carries business. An application may likewise be filed to a specific DRT if the cause of action completely or in part emerges within the limits of its jurisdiction.

SARFAESI Route

An application can likewise be made to the DRT under the Securitization and Remaking for Enforcement of Security Interest Act (SARFAESI), 2002. SARFAESI perceives the need to strengthen the rights of secured creditors to help them in recouping their dues. It sets out the procedure for doing as such without the intercession of courts or councils.

Section 13 (2) of the SARFAESI Act states that a notice is to be sent to the borrower after a loan has been classified as a Non-Performing Asset (NPA) by the secured creditor. This notice must mention the amount that needs to be repaid in full by the borrower within a period of 60 days. If the borrower fails to comply with it, then the creditor would be held entitled to exercise his rights under Section 13 (4) of the Act by taking ownership of the secured asset including the right to transfer the asset by way of lease, taking over management of the business or to appoint any person to manage the secured asset.

The transition into DRTs happens when the collateral asset is not sufficient enough to fulfil obligations to the creditors. In such cases, the creditors may file an application to the DRT for the recuperation of the rest of the part of the dues.

As per Section 17 of the SARFAESI Act, borrowers can appeal against any action taken by the creditor under section 13 (4).

Service of Summon/Notice

The Registrar of DRT or any other officer that has been authorized by the Presiding Officer will issue a notice which will be served by the applicant to the defendant. The summon also includes the paper book of the petition which is served to defendant generally by hand or registered post with Acknowledgement Due (AD) or speed post. With the consent, of Registrar, Summon/Notice can likewise be additionally sent through email or fax, in any case, in such occasion, it must be guaranteed that defendant gets a duplicate of the paper book on the primary date of his appearance. If the Summon/Notice has been sent through registered post or email or fax, an affidavit ought to be filed expressing method of dispatch and the accuracy of the address where it was sent.

Hearing of the case before Presiding Officer

Filing of reply

The defendant is required to file for the reply within one month from the date of service of the notice. The defendant can be allowed to file the reply after some time only with the permission of the DRT. DRT may proceed ex-parte if the defendant even after the extension of time is not able to file his reply.

The claim for counterclaim

The defendant can file for counterclaim only on the first hearing. After that, the permission of DRT would be required. The claim for counterclaim will have the same impact as a countersuit would in any proceedings.

Admission of liability by the defendant

The Presiding Officer would pass an order if the defendant admits his liability, instructing him to pay the required amount within a period of 30 days from the date of the order of DRT.

Affidavits

In a situation where the defendant tries to deny his commitment in that occasion, Presiding Office may require the parties to him to file an affidavit for proving any fact which will be read in the hearing as per DRT wishes. If the case requires a witness to be present for cross-examination, which needs to be recorded, then DRT may order the witness to be present for cross-examination and if the witness is not present at the time of the hearing, the affidavit would not be taken into evidence.

Interim Order by DRT

As per Section 19(12) of RDDBFI, DRT has the power to pass an interim order against the defendant, restricting him from disposing or transferring his property without the prior assent of the Tribunal. DRT is also authorized to confine the defendant for a period of three months on the ground of disobedience of any order issued under Sections 19(12), 19(13) and 19(18) of the SARFAESI Act.

Judgement and Recovery Certificate by DRT

DRT after hearing both the parties and their submissions would pass the final judgement within 30 days from hearing. DRT will issue a Recovery Certificate within 15 days from the date of judgement and pass on the same to Recovery Officer. RC shall have the same effect as the decree of the civil court.

Appeal

An aggrieved party can file for an appeal to Debt Recovery Appellate Tribunal (DRAT) having the jurisdiction to entertain the matter, against the order passed by the Debt Recovery Tribunal (DRT) within 30 days from the date of passing of the order by DRT. However, an appeal will not be entertained if the judgement given by the DRT was discharged with the consent of both the parties. DRAT shall entertain the appeal after the expiry of 30 days from the date of passing the order by DRT if he is satisfied that there was a sufficient cause for the same.

In Axis Bank v/s SBS Organic Pvt. Ltd. & Ors., the Supreme Court held that the appeal in DRAT would be entertained only on the condition that the borrower deposits the 50% of the amount in  terms of the order passed by DRT or 50% of the sum due from the borrowers as asserted by the secured creditor, whichever is less. The DRAT in his discretion may reduce the amount to 25%.

Conclusion

With the aim of providing financial bodies with a speedier and more proficient method of recuperation of debts, the legislature has provided for the introduction of special courts for the purpose, called as Debt Recovery Tribunals. Debt recovery Appellate tribunals have been set up to take up the appeal against the decision passed by DRT. These Tribunals have contributed to lessening the burden on civil courts.

There are 33 DRTs in India but DRATs are only 5 in number. This clearly shows that there is the need for more number of DRTs and DRATs. Also, there should be a fixed time period for disposing off the cases in order to speed up the recovery process. The functioning of DRTs should be improved by the enactment of efficient laws to ensure that banks are able to recover their existing loans.