Debt Recovery Tribunals in India: The Legal Framework

Mukesh Dwivedi*
Aqa Raza**

I
Introduction
“...a debt is a definite sum of money fixed by the agreement of the parties as
payable by one party to the other in return for the performance of a specified
obligation by the other party or on the occurrence of some specified event or
condition.”
―Millett, L.J. in Jervis v. Harris1

Keeping in line with the international trends on helping financial institutions, recovering their
bad debt quickly and efficiently, the Government of India has constituted thirty-three Debt
Recovery Tribunals (hereinafter referred to as the ‘DRT’) and five Debt Recovery Appellate
Tribunals (hereinafter referred to as the ‘DRAT’) across the country. The practice of lending
and borrowing is millenniums old. The concept of banking was incepted ever since humans
started engaging in economic transactions of any kind. The banking system has evolved since
then. We have well-established banks now in the 21st century-huge ones having more than $1
trillion in assets. The banking (or credit) sector is one that hold the reins of the world
economy. Without the presence of a well-established credit-system, we cannot expect the
economy to roll on. A dynamic banking system is essential for a thriving economy. Banking
in India faces the difficulty of mounting Non-Performing Assets (hereinafter referred to as
‘NPA’), which is unfavourable for the bank’s financial health. Banks have had to wait for
very long time in Civil Courts to get cases concerning debt-recovery disposed and recovered.
This led to the trapping of crores of rupees in litigation proceedings, which the bank could
not re-advance, forcing the Government to establish a Debt Recovery Tribunals to assure
expeditious recovery proceedings and speedy adjudication of matters concerning debt
recovery of banks.

II
Establishment of the Debt Recovery Tribunal
The Debt Recovery Tribunals (hereinafter referred to as the ‘DRT’) are established following
the Recovery of Debts due to Banks and Financial Institutions Act, 1993.2 The DRTs are

*
LL. M. from National Law Institute University, Bhopal; email: mukeshdwvd6@gmail.com.
**
B.A., LL.B. (Hons.), LL. M. (Gold Medalist) from Aligarh Muslim University, Aligarh, email:
aqaraza@outlook.com; Contact: +91 7417037864.
This paper has been published in the Indian Journal of Law and Policy Review, ISSN 2456 3773, Volume 1,
August, 2016, pp. 46-65; available at:
http://lawandpolicyreview.com/wp-content/uploads/2016/08/Debt-Recovery-Tribunals-in-India.pdf .
1
[1995] EWCA Civ 9, 202G.
Page 1 of 17
located across the country. Some cities have more than one Debt Recovery Tribunal located
therein.3 One DRT each has been constituted at Ahmadabad, Allahabad, Aurangabad,
Bangalore, Chandigarh, Coimbatore, Cuttack, Ernakulum, Guwahati, Hyderabad, Jabalpur,
Jaipur, Lucknow, Nagpur, Patna, Pune, Ranchi and Vishakhapatnam. Depending upon the
number of cases a Debt Recovery Tribunal is constituted.4

There are a number of States that do not have a Debt Recovery Tribunal. The Banks and
Financial Institutions and other parties in these States have to go to Debt Recovery Tribunal
located in other states having jurisdiction over their area. Thus, the territorial jurisdiction of
some Debt Recovery Tribunal is very vast. For example, the Debt Recovery Tribunal located
in Guwahati has jurisdiction over all the seven North Eastern States. Similarly, the territorial
jurisdiction of the Debt Recovery Tribunal located at Chandhigarh too has a very wide
jurisdiction over the States of Punjab, Harayana and Chandhigarh.

The setting up of a Debt Recovery Tribunal is dependent upon the volume of cases. Higher
the number of cases within a territorial area, more Debt Recovery Tribunal would be set up.
Each Debt Recovery Tribunal is presided over by a Presiding Officer. The Presiding Officer
is generally a judge of the rank of Dist. & Sessions Judge. A Presiding Officer of a Debt
Recovery Tribunal is assisted by a number of officers of other ranks, but none of them need
necessarily have a judicial back ground. Therefore, the Presiding Officer of a Debt Recovery
Tribunal is the sole judicial authority to hear and pass any judicial order.5
Each Debt Recovery Tribunal has two Recovery Officers. The work amongst the Recovery
Officers is allocated by the Presiding Officer. Though a Recovery Officer need not be a
judicial Officer, but the orders passed by a Recovery Officer are judicial in nature, and are
appealable before the Presiding Officer of the Tribunal.6

The Debt Recovery Tribunals are governed by the provisions of the Recovery of Debt Due to
Banks and Financial Institutions Act, 1993 (hereinafter referred to as ‘RDDBFI Act, 1993),
also popularly called as the RDB Act. Rules have been framed and notified under the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

After the enactment of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests Act (hereinafter referred to as ‘SRFAESI Act’, for short)

2
See, Section 3 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993.
3
New Delhi and Mumbai have three Debt Recovery Tribunal. Chennai and Kolkata have two Debt Recovery
Tribunals each.
4
See, supra n. 2.
5
See, Section 4 (1) of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993.
6
Ibid.
Page 2 of 17
borrowers could become first applicants before the Debt Recovery Tribunal. Earlier only
lenders could be applicants.

The Debt Recovery Tribunals are fully empowered to pass comprehensive orders like in Civil
Courts. The Tribunal can hear cross suits, counter claims and allow set offs. However, they
cannot hear claims of damages or deficiency of services or breach of contract or criminal
negligence on the part of the lenders.

The Debt Recovery Tribunal can appoint Receivers, Commissioners, pass ex-parte orders, ad-
interim orders, interim orders apart from powers to Review its own decision and hear appeals
against orders passed by the Recovery Officers of the Tribunal.

The recording of evidence by Debt Recovery Tribunal is somewhat unique. All evidences are
taken by way of an affidavit. Cross examination is allowed only on request by the defence
and that too if the Tribunal feels that such a cross examination is in the interest of justice.
Frivolous cross examination may be denied. There are a number of other unique features in
the proceedings before the Debt Recovery Tribunal all aimed at expediting the proceedings.7

III
Laws of Debt Recovery Tribunal

The Debt Recovery Tribunal have been constituted under Section 38 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993. The original aim of the Debts Recovery
Tribunal was to receive claim applications from Banks and Financial Institutions against their
defaulting borrowers. For this the Debts Recovery Tribunal (Procedure) Rules 1993 were also
drafted.

While initially the Debts Recovery Tribunals did perform well and helped the Banks and
Financial Institutions recover substantially large parts of their non-performing assets, or their
bad debts as they are commonly known, but their progress was stunned when it came to large
and powerful borrowers. These borrowers were able to stall the progress in the Debts
Recovery Tribunals on various grounds, primarily on the ground that their claims against the
lenders were pending in the civil courts, and if the Debts Recovery Tribunal were

7
See, http://www.bankdrt.com/; (Visited on February 12, 2016).
8
Section 3 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 reads as: Establishment
of Tribunal.— (1) The Central Government shall, by notification, establish one or more Tribunals, to be known
as the Debts Recovery Tribunal, to exercise the jurisdiction, powers and authority conferred on such Tribunal by
or under this Act.
(2) The Central Government shall also specify, in the notification referred to in sub-section (1), the areas within
which the Tribunal may exercise jurisdiction for entertaining and deciding the applications filed before it.
Page 3 of 17
adjudicating the matter and auction off their properties irreparable damage would occur to
them.

The dues of work men against a company, the State dues, and the dues of other non-secured
creditors all got enmeshed before the Debt Recovery Tribunals. As if these were not
sufficient, there was clash of jurisdiction between the Official Liquidators appointed by the
High Courts and the Recovery Officers of the Debts Recovery Tribunals. The Official
Liquidator, an appointee of a superior authority, took into his possession all the properties,
which actually belonged to secured creditors who before the Debts Recovery Tribunal. The
High Courts also took umbrage on the activities of the Recovery Officers who away the
entire amounts and paid off to the banks leaving nothing for the other claimants, including the
work men. All these and other issues lead to drastic amendments to the Recovery of Debts
Due to Banks and Financial Institutions Act by means of an amending notification in the year
2000.9

While the amending notification of 2000 did bring in some amount rationalization in the
jurisdiction of the Debts Recovery Tribunal, yet it was not sufficient to coax the big
borrowers to acquiesce to the jurisdiction of the Debts Recovery Tribunal easily. The lenders
continued to groan under the weight of the Non-Performing Assets. This led to the enactment
of one more drastic act titled as the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests Act, also called as SRFAESI Act or SRFAESIA for short.
This new Act, the SRFAESI Act, empowered the lenders to take into their possession the
secured assets of their borrowers just by giving them notices, and without the need to go
through the rigors of a Court procedure. Initially this brought in lot of compliance from
borrowers and many a seasoned defaulter coughed up the Bank dues. However the tougher
ones punched whole in the new Act too. This led Supreme Court striking down certain
provisions and allowing the borrowers an adjudicatory forum before their properties could be
taken over by the lenders.10

And the adjudicatory forum turned out to be the Debts Recovery Tribunal. The Debts
Recovery Tribunal now deals with two different Acts, namely the Recovery of Debts Due to
Banks and Financial Institutions Act as well as the Securitisation and Reconstruction of

9
See, http://bankdrt.net/auction_rules.php.; (Visited on February 12, 2016).
10
See generally, the SAFAESI Act, 2000.
Page 4 of 17
Financial Assets and Enforcement of Security Interests Act. While the aim of the both the
Acts is one and the same, but their route is different.11

The Debts Recovery Tribunal have to deal with extraordinary complex commercial laws
within the narrow ambit of the two laws. Over the years the Debts Recovery Tribunals have
evolved into fine bodies with lot of expertise. There is a plethora of judgments from the
Supreme Court as well as the various High Courts which have paved the way of the Debts
Recovery Tribunals to chart their courses. The Debts Recovery Tribunal of India have
become model institutions for many a country to follow.

IV
Importance of Debt Recovery
A speedy debt recovery is importance for the following reasons:12

i. A bank’s money can be termed ‘public money’. This is because, in case of

Public Sector banks, it is the Government’s money that runs the banks and
the capital infusion is done by the government. In case of Private Sector Banks, it
is the capital of the millions of investors that steers the bank. Moreover, the
funds of the banks are intended to be served to the general public and for the
commercial initiatives that largely influences the people, who depends on it.
When money is trapped, a bank faces difficulty in funding projects, which it
could earlier do
ii. NPAs affects the profitability of the bank; hence debt recovery is made essential
to ensure that it functions smoothly
iii. If the bank succumbs to a financial crisis, it will leave the employees,
management, and all the stakeholders in the dark
iv. A large amount of NPA will tarnish the image of the bank, and can
discourage investors
v. ROI of the bank decreases, if the NPA is not recovered speedily
vi. Cost of Capital (interest) gets stranded. It is the bank’s prime source of income

In order to recover a non-performing loan whether secured or not, a bank must first obtain
a court order. Before 1994, this involved filing a legal suit in the civil court system. In this
suit the banks must state the particulars of the case and request that the court direct the
borrower to pay the money to the banks. If the loan is unsecured the bank must request that

11
Supra n. 7.
12
Deolalkar, G. H., The Indian Banking Sector: On the Road to Progress; available at:
http://www.adb.org/Documents/Books/Rising_to_the_Challenge/India/india_bnk.pdf; (Visited on February 12,
2016).
Page 5 of 17
the court liquidate the firm assets and distribute the proceeds from the liquidation among all
the creditors according to the priority of their claim. If the loan is secured it must request that
the court enforce its security interest that is allow the sale of collateral so that the bank may
recover its dues.13

The Indian court system is very famous for the time taken to resolve the cases. It has been
remarked that the most effective method of dispute resolution in these courts are the out of
the court settlement, withdrawals and compromises. The cases both in the district court and
the High Court are subject to long delays. While the legal scholars point various for the
inefficiency of the court system, it is widely acknowledged that the loopholes are important
factors. The code which is known as the civil procedure code allows for numbers of
applications, counter applications and special leaves by both the plaintiff as well as the
defendant. Although both the central and state legislature has attempted to reform the code by
enacting the various amendments but the general consensus is that these attempts have been
unsuccessful. In this setting the benefit from filing a legal suit against the defaulting borrower
is very low and the cost has been very high. In addition to this the bankruptcy procedure for
the firms is time consuming and the banker complains that it creates incentives for the
borrowers to mismanage the funds.

V
Judicial Decisions

As to the leave of the Company Court for transfer of cases, one of the earliest cases where the
aspect of the overriding effect of the Act was faintly mentioned was in Industrial Credit and
Investment Corporation of India Ltd v. Srinivas Agencies,14 where the issue of whether leave
should be granted by the Company Court to continue proceedings in other civil courts and
whether all proceedings should be transferred to the Company Court.

Shri Salve, one of the appearing advocates, to buttress the submissions of the opposing
parties stated that:

"...convenience may not be the guiding factor; whereas it was for the preservation of
the integrity of the substantive right of the creditor which should be the main
consideration when he referred to the Act which was then recently enacted because of
the considerable difficulties faced by banks and financial institutions in recovering

13
Ibid.
14
(1996) 86 Comp Cas 255 (SC).
Page 6 of 17
 loans and enforcement of securities charged with them." Section 1815 of the Act has
barred the jurisdiction of other courts, except the writ power of the higher courts, in
relation to the matters specified in section 1716 the same being recovery of debts due
to such institutions.

The court was of the view that the approach to be adopted by the Company court does not
deserve to be put in a straightjacket formula. The discretion to be exercised has to depend on
the facts and circumstances of each case. While exercising this power, the Company Court
should also bear in mind the rationale behind the enactment of the Act.

The non-obstante clause:

The non-obstante clause in the Act and the non-obstante clause in the Companies Act were
considered in Industrial Credit and Investment Corporation of India Ltd v. Vanjinad
Leathers17 where the court opined that Section 18 of the Act creates a bar on jurisdiction of
other authorities and courts except the Supreme Court and High Courts under Articles 226
and 227 of the Constitution. The court also stated that the Act and the Companies Act is
special legislation. However, since the Act was enacted after the Companies Act, 1956, the
Parliament would have certainly in mind the provisions in the earlier special law namely the
Companies Act. Therefore, the latter special law will prevail over the former.

Courts have, from time to time, considered the effect of a special act enacted subsequent to a
general act or a special act. The Supreme Court in Life Insurance Corporation of India v. DJ
Bahadur & Ors.,18 held that the ‘legislature has an undoubted right to alter a law already
promulgated by it through a subsequent legislation. A special law may be altered, abrogated
or repealed by a later general law through an express provision. A later general law will
override a prior special law if the two are so repugnant to each other that they cannot co-
exist even though an express provision is not provided for in that general law.’

15
Section 18 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 reads as: Bar of
Jurisdiction.— On and from the appointed day, no court or other authority shall have, or be entitled to exercise,
any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under
articles 226 and 227 of the Constitution) in relation to the matters specified in section 17.
16
Section 17 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 reads as: Jurisdiction,
powers and authority of Tribunals.— (1) A Tribunal shall exercise, on and from the appointed day, the
jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions
for recovery of debts due to such banks and financial institutions. (2) An Appellate Tribunal shall exercise, on
and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made,
or deemed to have been made, by a Tribunal under this Act.
17
AIR 1997 Ker 273.
18
(1981) 1 SCC 315.
Page 7 of 17
It is only in the absence of an express provision to the contrary and of a clear inconsistency
that a special law will remain wholly unaffected by a later law.

The general rule to be followed in case of a conflict between two statutes is that a later statute
abrogates the earlier 'leges posteriors priores contrarias abrogant'19 and the well-known
exception is that general legislations do not derogate special legislations 'generalia
specialibus non derogant'.20

The Supreme Court held in JK Cotton Spinning and Weaving Mills Co. Ltd v. State of U.P.,21
that when there is a conflict between a specific provision and a general provision, the specific
provision prevails over the general provision. The rule applies to resolve conflicts between
different statutes as also in the same statute.

The Patna High Court in Bihar Solex (P) Ltd., In re22 on the basis the judgment in
Maharashtra Steel Tubes case held that u/s 17, 18 and 34 there cannot be any doubt that the
jurisdiction of the DRT to entertain and decide suits or other proceedings by banks or
financial institutions is exclusive, to the exclusion of all other courts except the Supreme
Court or the High Court under Articles 226 and 227.

The Supreme Court in the Industrial Credit and Investment Corporation of India
Ltd case held that there was no requirement of the leave of the leave of the Company Court
for any party to proceed in the DRT and that has to be tried in the specialised machinery set
up under the Act.

Another question that came before the High Court of Calcutta in State Bank of India v. S.M.
Oil Extraction (P) Ltd.,23 was whether the non-obstante clause contained in a different
enactment that is the Act would operate to deprive or deny those rights of creditors or
workers in a Company in liquidation, which were protected under the Companies Act. The
Court held that the provisions of the non-obstante clause in the Act would have no effect on
the procedure as contained in the Companies Act. Consequently, there would be no conflict
in the operation of the two clauses. For it was on record that section 446 of the Companies
Act was not repealed and it could not be said with any certainty that there appeared any
intention of the legislature anywhere in either of the enactments, that the later enactment

19
Later laws repeal earlier laws inconsistent therewith, Wadhwa, Concise Law Dictionary, p. 333.
20
General things do not derogate from special, Wadhwa, Concise Law Dictionary, p. 333.
21
[1961] 3 SCR 185, 194.
22
(1999) 20 Com Cas 235 (Bihar).
23
(1999) 21 Comp Cas (Calcutta).
Page 8 of 17
would in effect operate as against the earlier clause. Had the legislators so intended, indeed
appropriate provisions to that extent would have been provided for in the later or in further
legislation. In those circumstances, it was held that when the rights of the creditors and
workers were protected by the legislators in the Companies Act, in the absence of any
specific and categorical provisions a, non-obstante clause contained in a different enactment
neither could nor operate to deprive or deny any such right.

A lot of issues came for discussion in Allahabad Bank v. Canara Bank.24 The issues included
jurisdiction of the tribunal and the Recovery Officer under the Act, need for the leave of the
Company Court, power of the Company court to stay proceedings under the Act, whether
banks filing for recovery can appropriate the entire sales proceeds realized except to the
limited extent restricted under section 529A of the Companies Act, position of secured
creditors who participate in the winding up proceeds and those who opt to stand outside the
winding up proceedings.

The jurisdiction of the tribunal with respect to adjudication was held to be exclusive. The
court observed that basically the tribunal is to adjudicate the liability of the defendant and
then it has to issue a certificate under Section 19(22) of the Act, which was recently amended
by Ordinance 1 of 2000. Under Section 18 of the Act, the jurisdiction of other courts (except
that of the Supreme Court and High Courts under Articles 226 or 227 is completely ousted
and the power to adjudicate is exclusively vested in the DRT.

Similarly, regarding 'execution' the jurisdiction of the recovery officer is exclusive. The
Tiwari Committee, in its report mentioned that the exclusive jurisdiction of the Tribunal must
relate not only to the adjudication of liability but also to the execution proceedings.

The next issue was whether the leave of the company court is required for continuing or
initiating proceedings in the DRT and whether the Company Court could stay proceedings in
the DRT. Questions also arose w.r.t. to priorities under Sections 529, 529A, and 530.
Reliance was placed on the judgment of the Supreme Court in Valji Shah v. LIC of India,25
where the analogy between s18 of the Act and s 41 of the Life Insurance Corporation Act was
brought out and the court held:
" ...just as the Company Court was held incompetent to stay or transfer and decide the
claims before the LIC tribunal because the Company Court could not decide the
claims before the LIC tribunal, the said court cannot decide the claims of banks and

24
AIR 2000 SC 1535.
25
AIR 1966 SC 135.
Page 9 of 17
 financial institutions. On parity of reasoning with the Valji Shah case, there is no
need for the appellant to seek leave of the Company Court to proceed with its claim
before the DRT or in respect of the execution proceedings of the recovery officer. Nor
can they be transferred to the Company Court."

It further held that the Act and the special provisions in it were for a superior purpose, i.e., the
provisions of the act are superior to the provisions of s 442, 446, and 537 of the Companies
Act. As far as priorities for creditors are concerned, the Tiwari Committee had stated, "the
Adjudication Officer will have such power as to distribute the sale proceeds to the banks and
financial institutions being secured creditors in accordance with inter-se agreements or
arrangement between them and to other persons entitled thereto in accordance with the
priorities in Law." The above recommendations have been brought in to the act with greater
clarity under Section 19(19) as substituted by Ordinance 1 of 2000.

VI
Methodology

Before institution of the Debt Recovery Tribunal the banks were in a predicament before the
advent of the Debt Recovery Tribunal. Debt recovery cases were like other civil cases and
had to be filed in ordinary civil courts. Court proceedings were dragged for long periods, at
times more than 15 years. This took its toll on the financial health of the banks, as the
chunk of the stressed assets got snagged in the litigation. The bank found it very difficult to
fund their further advances. This grave situation led the economy into the trajectory of
sluggish growth. Industry found it tough to get credit to fund projects. The Government then
appointed the Narasimhan Committee, which made a path-breaking recommendation to install
tribunals to deal with cases of debt recovery.26

Recovery of Debts Due to Banks and Financial Institutions Act, 1993:

The need for a comprehensive law on the recovery of debts was stressed by the Tiwari
Committee Report (1981) which stated:27

“The civil courts are burdened with diverse types of cases. Recovery of dues due to
banks and financial institutions is not given any priority by the civil courts. The banks
and financial institutions like any other litigants have to go through a process of
pursuing the cases for recovery through civil courts for unduly long period.”

26
See, the Tiwari Committee Report, 1981.
27
Ibid.
Page 10 of 17
The Tiwari Committee Report was endorsed by the Narasimhan Committee in
1991.Conforming to the recommendations of Narasimhan Committee; the Government in
1993 enacted the avant-garde legislation of Recovery of Debts to Banks and Financial
Institutions Act (Popularly known as the RDB Act). The functions of the Debt Recovery
Tribunal were governed by the RDB Act. It has to be noted that the Tribunal was set up by an
Act of Parliament, which is empowered to do so according to the Article 247 of the
Constitution of India. The RDB Act revolutionised the way asset-recovery cases were resolved
in India. It has been challenged in various accounts. In 1995, the constitutionality of the DRT
was challenged successfully before the Delhi High Court, which held that the Tribunal could
not function validly since it did not have any provision for filing counterclaims. Subsequently,
the RDB Act was amended and the constitutionality of the amended act was upheld by the
Supreme Court. As things stand now, borrowers are entitled to file ‘counterclaims’ under
S.19 of the RDB Act.28

VII
Constituents of a Debt Recovery Tribunal
A Debt Recovery Tribunal is headed by a Presiding Officer, who acts as the Judge of the
Tribunal. It also consists of a number of staff in the Registry. The Registry is responsible for
accepting applications and filing of cases with the DRT. The Registry is headed by a Registrar.
It is the Registrar’s mandate to perform the functions of a Judicial Officer till the case is
transferred to the Presiding Officer for the final hearing. The Registrar is assisted by an
Assistant Registrar. The Act also accounts for the post of Recovery Officers who are to
execute the decree.

1. Duties and Powers of the Recovery Officer 29

i. Execute the final decree
ii. Post the final decree, to realise the debt amount and deposit it back with the bank.
iii. Conduct public auction according to Section 25 to 28 of the RDB Act.
iv. The merits of the Certificate, or the amounts mentioned in the Certificate cannot
be agitated before the Recovery Officer.
v. The Recovery Officer does not have the powers to add or remove people whose
onus it is to satisfy the certificate. The Recovery Officer can, however, enlarge
the area of persons from whom he may attempt to satisfy the Certificate, subject to
provisions of the Rules, i.e. the new persons must be holding sums on behalf of

28
See, Section 19 of the DRT Act, 1993.
29
See, Section 18 of the Act.
Page 11 of 17
 the Certificate debtor.
2. Duties of the Registrar
i. Registry accepts all the original applications and securitisation applications, and
files them.
ii. The Registry passes the file to the Registrar, who performs further scrutiny.
iii. He performs the initial functions of the Tribunal in the primary stage of the course
of action.
iv. The Registrar has the duty to issue summons, Show-Cause Notices and make
the defendants aware of the suit filed against them.
v. The Registrar also collects the reply to the issued Show-Cause notices.
3. Procedures followed by the Debt Recovery Tribunal 30
i. Section 19 of the RDB Act deals with the procedure for filing a case with the DRT.
ii. An application can be filed in the Tribunal on a case, within the jurisdiction of it,
on the recovery of debts from a person or an entity.
iii. If two or more banks have a case on the same matter, the latter banks can join the
former or first bank (on the filing of application).
iv. A fee is prescribed by the Act, which shall be paid by the applicant. The
minimum fees to file an application is 12,000 and the maximum is
1,50,000.
4. DRT Proceedings in a Nutshell

Followings are the proceedings for the Tribunal:

i. An original application along with the documents of evidentiary value and the
required fees is filed with the Registry.
ii. The Registry reviews the application, checks for any flaws, accepts or rejects it.
iii. The file then passes to the Registrar for further scrutiny of the application.
iv. If the application is registered, a summons is issued by the Registrar.
v. If the defendant does not appear, the case becomes ex-parte.
vi. Else, the defendant is required to file a Written Statement within 90 days of the
summons.
vii. Proof-Affidavit is filed by the applicant.
viii. A Hearing Date is set by the Registrar under the directions of the Presiding
Officer.
ix. A Stay Petition may be served by the defendant.

30
See, Section 19 of the Act.
Page 12 of 17
 x. Counter-Proof Affidavit is filed by the defendants.
xi. Final Hearings on the case will be done
xii. The Final order or decree is made by the Presiding Officer.
xiii. A Recovery Certificate made by the Tribunal will be passed on to the Recovery
Officer of the Tribunal who has the responsibility of recovering the amount and
hand it over to the bank.
5. Facts Concerning Procedure Followed by the DRT31
i. On receipt of an application, the Tribunal shall issue summons, requiring the
defendant to show cause within 30days of the service of summons as to why the
relief prayed for should not be granted.32
ii. A Counter-claim can be filed by the applicant through a written statement
against the application and the acts of the applicant, attached with the necessary
documents of evidentiary value.
iii. Section 19(12) provides that the Tribunal shall give an interim order in the
form of an injunction, stay or attachment.
iv. The tribunal can appoint a Receiver.

Section 19 of the RDB Act clearly lines up the procedure to be followed, initially by the
applicant and then by the Tribunal in the process of dispensing cases.

6. Debt Recovery Appellate Tribunal 33

The Debt Recovery Appellate Tribunal is also established as a result of the Recovery of Debts
due to Banks and Financial Institutions Act, 1993. The DRAT has the appellate
jurisdiction on all matters concerning the recovery of debts in India. There are currently 5
DRATs in India. They are in Mumbai, Delhi, Chennai, Kolkata and Allahabad. The Judge in a
DRAT is addressed as Chairperson. An appeal can be made against a decision by the DRT
within 45 days from the date of passing of the decree, by depositing 75 per cent of the claim or
any such amount as fixed by the DRT.
VIII
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 200234
It is the SARFAESI Act that brought a greater change in the debt recovery scenario in the
country. One of the important changes that SARFAESI has brought is that it allowed the banks

31
Ibid.
32
See, Section 19(4) of the Act.
33
See, Section 9 of the 1993 Act.
34
Hereinafter referred to as ‘SARFAESI Act’ for short.
Page 13 of 17
to take over possession from the defaulter, without going through the stringent court procedure,
once the loan account has been categorised as a Non-Performing Asset.35 The SARFAESI Act
allows the Secured Creditor to sell or lease the secured asset, or appoint a Receiver to take
care of the asset which is classified as a NPA. The bank can take the possession of the
secured asset within 60 days of serving the notice to the defaulter with the assistance of the
Chief Judicial Magistrate. Under the SARFAESI, if the loan account has been classified as a
NPA, the authorised officer from the bank can start the proceedings. The bank can demand
the full loan amount be repaid along with interest payments, even if the borrower has
agreed to pay the overdue amount. Rather than regularising the account, the bank seeks that
the entire amount be payable and the bank advances are always repayable on demand. But,
nothing can stop the bank from halting the proceedings and continuing with the loan account if
it has been regularised by the borrower by paying the over-due amount. The SARFAESI Act
is applicable for all the Scheduled Commercial Banks. However, Cooperative Banks
are not allowed to invoke their powers using SARFAESI Act after a Supreme Court ruling.

An Amendment was made to the Act, which entitled the borrower to make an application of
objection to the authorized officer of the bank before the 60 days’ notice period allowed by
the bank. Supreme Court in Mardia Chemicals Case upheld the Constitutional validity of
SARFAESI Act but struck down Section 17(2) of the Act which provided for the deposit of
75 per cent of the claim before the appeal is admitted by the Tribunal.

After the Supreme Court verdict, an amendment was made to the SARFAESI Act. According
to this amendment, the secured creditor may be able to take over the possession of the
property only if the reasons for non-acceptance of the objection raised by the borrower are
furnished to him. If an asset has been taken over by the bank, then an application can be
placed before the DRT without any deposits.

On receipt of the application of objection, the bank has to reply back, within seven days to
the borrower or defaulter explaining why the charges mounted shall persist. However, if the
objection is rejected by the bank, the borrower or defaulter is free to approach the High Court
by invoking Article 227 of the Constitution. If the rejection to the objection made by the
bank is proper and satisfies the Writ Court, then the High Court may reject the writ application.
If the total due amount is not realised by the sale of the secured asset, then the secured
creditor is allowed to approach the Debt Recovery Tribunal.

35
See, Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002.
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 IX
What are Non-Performing Assets?
All loan advances of banks are assets. The loan or lease, which is not meeting its stated
interest or principal repayment of the secured debt to the designated lender, is called as a
Non-Performing Asset. A ‘Non Performing Asset’ means an asset or account of a borrower,
which has been classified by a bank or financial institution as substandard, doubtful or loan
asset. The borrower has not paid any previously-agreed payments or the Principal amount,
making the loan account non-performing.
The SARFAESI Act, the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, defines Non Performing Assets as: “...an asset
or account of a borrower, which has been classified by a bank or financial institution as
sub-standard, doubtful or loss asset, (a) in case such bank or financial institution is
administered or regulated by any authority or body established, constituted or appointed by
any law for the time being in force, in accordance with the directions or guidelines relating
to assets classifications issued by such authority or body; (b) in any other case, in accordance
with the directions or guidelines relating to assets classifications issued by the Reserve Bank.”
The NPA is not extending any income to the designated lender. The banks treated the
accounts as non-performing if the borrower has not paid the instalments or the principal for a
period of 180 days. But the Central Bank’s policy change in 2004 required that banks classify
the loan account as Non-Performing if the payment has not been made into the loan account
for a period of 90 days. Even if credit facilities remain performing, the bank has to categorise it
as non-performing.

X
Possible Solutions
Suggestions to improve the efficiency of the Debt Recovery Tribunal Accountability are as
under:
i. High Courts do not have supervisory jurisdiction over the Debt Recovery Tribunal in
the state. However a writ petition can be filed in the High Court against an
order/decree of the Debt Recovery Tribunal. So, as a matter of fact, the Debt
Recovery Tribunal does not have any accountability what so ever to any public office.
There is no mechanism in place to ensure that the cases at the Tribunal be disposed in
a timely manner. As a matter of fact, there is an added need for ensuring
accountability for the Tribunal. body which has inner knowledge of the Debt
Recovery Scenario in the country.

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 ii. The DRAT should look into the reason for the backlog of cases and see to it that the
speedy recovery is assured.
As to staffing:
iii. The duty to appoint staff at the Tribunal lies with the Ministry of Finance. Timely
appointments have to be made by the ministry to ensure smooth functioning of the
Tribunal. Also, the ministry must ensure that only individuals with a fine
understanding of the law and debt recovery scenario be appointed to key posts, such
as the Registrar and Presiding Officer.
As to close examination of stay petitions:
iv. Stay Petitions have to be analysed carefully before being accepted. Allowing Stay
Petitions to a large number of the cases has been determined as one of the reasons for
the piling up of cases in the DRT. Adjournment should also be strictly regulated. If
the Debt Recovery Tribunals were to grant adjournments in the same manner as the
Civil Courts, then the very purpose of setting up of the Debt Recovery Tribunals
would be defeated.

XI
Conclusion & Suggestions

From the study conducted it has been ascertained that the cases get delayed inordinately in a
Debt Recovery Tribunal much against the spirit and motive of its very establishment. Banks
have expressed their dissatisfaction with the system that was instituted to ensure speedy
recovery. The number of claims in litigation is quite large and changes should be made
urgently to revamp the existing model. Unless the system is overhauled, the rate of pendency
at the Tribunal will rise unrestrained. Such a state of affairs will seriously put the banking
system in doldrums.

The functioning of Debt Recovery Tribunals (DRTs), created to help financial institutions
recover dues speedily without being subjected to the lengthy procedures of usual civil courts,
appears to cause more pain than gain for banks. Consider this: The amount recovered from
cases decided in 2013-14 under DRTs was Rs 30,950 crore, while the outstanding value of
debt sought to be recovered was Rs 2,36,600 crore. In other words, recovery was only 13 per
cent of the amount at stake. Also, while the law indicates that cases before DRTs must be
disposed off in six months, only about a fourth of the cases pending at the beginning of the
year were disposed during the year. “The functioning of DRTs needs to improve to ensure
bank are able to recover their existing loans and offer fresh advances at cheaper rates. In the
current scheme of things, there is no mechanism in place to ensure that the tribunal disposes

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the case in a timely manner. There is a strong need to bring in more accountability for the
DRT,” said Shashwat Sharma, partner (Management Consulting), KPMG in India. One
problem is the small number of DRTs and Debt Recovery Appellate Tribunals, where
judgments of DRTs can be appealed. While there are 33 DRTs, there are only five Debt
Recovery Appellate Tribunals in the country. “There is certainly a need for more number of
DRTs. The biggest challenge, it appears, is their ability to deal with a subject with speed. The
system that was designed is clearly not working. Probably, there should be a feedback
mechanism and people involved with DRTs should be encouraged to point out the areas of
pain,” said Ashvin Parekh, Managing Partner at Ashvin Parekh Advisory Services. Deepak
Haria, Senior Director at Deloitte in India, echoed a similar view. “The challenge is that our
judicial system is both clogged and inadequate in infrastructure, which slows down any
redressal. Recovery can be speeded up only when there is a fixed time-frame for all disposals,
and realisation of assets could be speeded up by having special courts to deal with such
recoveries,” he said. The functioning of DRTs is also keeping the Reserve Bank of India
(RBI) worried. “If bankers cannot get their money back, they are not going to give you loans
at cheap price. So, making sure debt recovery tribunals work better, making sure that you
don’t have excess number of stays, excess number of appeals – that is what we need to focus
on,” RBI Governor Raghuram Rajan said following the central bank's fifth bi-monthly
monetary policy review. Experts suggest that the law should be strengthened to ensure
mandatory time-bound disposal of cases. Also, performance indicators of the adjudicating
officer could be used to improve the efficiency of the system. A few recommended that stay
petitions should be analysed before being accepted as there have been instances where
advocates exploit the loopholes of the Act and plead for stays, leading to piling up of cases.

As to the suggestions to improve the debt recovery scenario in the country it is recommended
that the time bound disposal of cases though the Court has to dispose an order application
within six months, and a stay application within two months from the date of its admission,
this has not been followed by the Tribunals in India in many situations. The government has
to make sure that time-bound disposal of the cases is done mandatorily by adding the clause
in the Act and making it a law. Even though the SARFAESI Act has mandated the Debt
Recovery Tribunals to settle the Original Applications within six months, this is not obeyed
strictly. Efforts have to be taken to ensure this.

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