What is DRT?

Indian banks and financial institutions had since long been suffering to recover debts
and enforce securities from the defaulters. As the procedure regarding such recovery
was erratic and extremely cumbersome, the Narasimham Committee of 1991
recommended the setting up of Special Tribunals like DRTs (Debt Recovery Tribunals)
and DRATs (Debt Recovery Appellate Tribunals), in order to streamline such processes.
The Committee’s recommendation led to the enactment of Recovery of Debts Due to
Banks and Financial Institutions Act (“RDDBFI”) 1993, from which DRTs and DRATs
derive their authority to adjudge on debt recovery matters. Since its inception, we have
39 DRTs and 5 DRATs functioning in the country.

DRT’s Legitimacy

In 1995, the Delhi HC struck down RDDBFI, due to its unconstitutional nature which
compromised the independence of judiciary. However, the SC allowed DRTs to function,
if amendments are made to the existing Act of RDDBFI. Therefore, the government
made subsequent amendments to RDDBFI in 200 and 2002, to which the SC gave its
nod of being constitutional. Thus, in the present scenario DRTs function in a
constitutional manner.

Composition of DRTs

Under 4 of the RDDBFI Act, the Tribunal shall be comprised of only one member
(“Presiding Officer”), who shall be appointed by the Central Government upon
notification. Upon authorisation of the Central government, the Presiding Officer (“PO”)
of one Tribunal may also discharge functions of Presiding Officers of another Tribunal.
The PO shall be appointed for a term of 5 years or 62 years of age, whichever is earlier
and shall be qualified as a District Judge.

Extent and scope of DRTs

Pecuniary limit under DRTs and the procedure

The DRTs can be approached for recovery of debts which are more than Rs. 10 lakhs in
value. For lower amounts than the above-mentioned value, the banks and financial
institutions (“creditors”), need to approach a civil court under CPC (Civil Procedure
Code). However, the Act warrants that for other amounts more than Rs. 1 lakh, the
Central government can direct certain cases to be adjudged by DRTs. Furthermore,
SARFAESI Act, also specifies certain amounts pertaining to different cases, which can be
taken up by the DRTs.

Now, 22(1) mandates the DRTs and the DRATs to be governed by the principles of
natural justice. In pursuance of such principles, they possess the powers to regulate
their own procedure and not be bound by the one laid down in CPC. Moreover, in order
to argue cases in DRTs, a law degree is not required.

Jurisdiction of DRTs

Under 17 of the RDDBFI Act, DRT has the authority to entertain any application from
banks and financial institutions, in order to recover loans for such banks and financial
institutions. DRAT being the Appellate Tribunal shall have the jurisdiction to entertain
appeals against any order made by a DRT under the Act. However, Supreme Court has
adjudged that DRT and DRAT cannot decide upon cases like succession rights of
property, issuance of receipts, etc. Its jurisdiction is strictly confined only to cases
mentioned in 17 of the Act.

Now, under 18 of the Act, other courts are barred to look into matters of debt apart
from Supreme Court and High Court, who derive their authority from Article 226 and
227 of the Constitution. This provision is in line with the L Chandra Kumar’s judgment
which states that Tribunals are only supplementary to High Courts and not a substitute
for them.

The Process of DR

The Application Route

Under 19 of the RDDBFI Act, the conditions are laid down as to under which DRT one
has to file an application. Such an application can be filed by a bank or a financial
institution to a DRT, that has the jurisdiction, and where the defendant either resides or
carries out his business. Moreover, an application can also be filed with a DRT, if the
cause of action arises wholly or partly within the limits of the jurisdiction. Along with
the application, the prescribed needs to be paid.

SARFAESI Route

An application to the DRT can also be made under the Securitisation and Reconstruction
for Enforcement of Security Interest Act (SARFAESI), 2002. Under SARFAESI, the
secured creditor takes possession of the securities of the debtors, when he fails to
discharge all his liabilities. However, there occurs a case, wherein the securities are not
able to discharge of the entire debt. Under these circumstances, the creditors have an
option of filing an application to the DRT for recovery of the remaining dues. Moreover,
under 17 of the SARFAESI Act, the borrowers can also appeal to the DRTs against the
creditor’s findings.

Procedures to be followed post-filing an application

DRTs and DRATs are adjudicated by summary proceedings, in order to expediate the
court proceedings. Under 19(12) of the Act, the DRT has the powers to proclaim an
interim order against the borrower in order to restrict him from disposing or
transferring any property belonging to him without the prior permission from the
Tribunal. Moreover, the DRT can go to the extent of detaining the borrower for a period
of maximum 3 months for any disobedience of an order or breach of any order issued
under 19(12), 19(13) or 19(18) of the RDDBFI Act.

When an application is made under the normal application route, then the time frame to
complete the case is 180 days. However, if the application is made to the DRT under the
SARFAESI Act, then the cases are needed to be disposed off within 60 days to 4
months. If the time duration gets exceeded then under 16 of the SARFAESI Act, either
party can appeal to DRAT to direct the DRT to dispose of the pending application.

Under 19(4), the application made to a DRT warrants summons to be issued to the
defendant to show cause within 30 days as to why the prayed relief should not be
granted. The defendant must turn in a written submission, for which extra time can be
granted by the Tribunal. A defendant can also file a counter-claim against the
complainant with respect to the alleged sum of money, but only in the first hearing,
except also in cases where the Tribunal explicitly grants such permission.

Based on the DRTs order, the Presiding Officer shall issue a certificate to the Recovery
Officer to recover the debt amount, which has been specified in it, The Recovery Officer
may attach, sell or appoint a receiver for the management of the defendant’s property,
in order to recover the debt. Moreover, the DRTs also possess the power to obtain a
police warrant to arrest the defendant in these cases.

Procedure for DRAT

India currently houses only 5 DRATs which are located in Mumbai, Delhi, Kolkata,
Chennai and Allahabad. Now, under 20(3) of the RDDBFI Act, an appeal with the DRAT
needs to be filed within a period of 45 days, from the date on which the copy of the
order of the Tribunal is received by him. However, the provisio to 20(3) states that the
Appellate Tribunal may also allow an appeal after the expiry of 45 days, if there is
sufficient cause to indicate that the appeal could not have been filed earlier. It is
pertinent to note that DRAT can also be approached in case of an interim relief to be
obtained on interim application or miscellaneous application, which form a part of the
original applications.

DRATs are deemed to be expensive, such that aggrieved party is required to deposit
75% of the amount determined by the order of the DRT. In case the matter is routed
through the SARFAESI Act, the deposit limit is 50% of the amount claimed by the
creditor. These exorbitant deposits often deter the defendants from appealing to the
DRATs.

Change in DRTs post IBC

The Insolvency and Bankruptcy Code, 2016 (“IBC”) was brought about by the
government in order to unify the legal framework on bankruptcy and insolvency issues.
IBC consolidated various laws relating to insolvency by amending close to 11 laws,
including Companies Act, 2013, RDDBFI 1993, SARFAESI, 2002. It also did away with
various old laws like Presidency Towns Insolvency Act, 1909, Sick Industrial Companies
Act, 1985, etc. 238 of the IBC gave an overriding effect over the other laws.

Changes/Amendments to the RDDBFI Act after IBC are specified in the 5th Schedule of
IBC and are as follows:

1. The title has been amended to also include bankruptcy of individuals and
partnership firms into its ambit, rather than being merely limited to banks and
financial institutions.
2. Under 3 sub-section 1(A) was added which claimed that the Central
Government would have the power over the number of DRTs and its benches
as it may deem necessary.
3. 8 was amended, so as to entitle DRAT here appeal matters against orders
made by Adjudicating Authority under Part III of IBC.
4. 17 was amended so that DRTs have circuit sittings in all district headquarters.
Moreover, DRTs an DRATs were granted powers and jurisdiction to entertain
applications as under Part III of IBC.

Distinction between the two forums

 1. The first basic point of difference between the two tribunals is that DRT is
regulated by SARFAESI Act and its Parent Act i.e. the DRT Act, on the other
hand NCLT is regulated by the Companies Act and IBC.

2. Secondly, the very nature of the relief provided by these bodies is different. While
NCLT concerns itself with liquidation and bankruptcy proceedings, DRT is more focussed
on debt recovery.

3. Thirdly, NCLT provides remedy sought to companies in case of default in payment of

debts that are both operational and financial which gives both banks and financial
institutions the right to approach NCLT for the recovery of loan amount.

Since all commercial transactions entered into businesses come under the ambit of
operational debts. companies choose the convenient forum i.e. NCLT for the initiation of
insolvency recovery process instead of filing a suit in civil court. On the other hand,
DRTs can only help in facilitating the recovery of amounts of financial nature i.e. dispute
resolution between customers and banks. It does not have jurisdiction to entertain any
other cases.

Conclusion

The present law involving the code still faces confusion as the presence of more than
one available forum is tested by implementation of law. The disposal rate of DRTs is
alarming as they are unable to reduce the pending cases. The existence of many
company related legislations with respect to recovery of debt mandates and asks for
interpretation. A delay in disposal of cases due to overlapping proceedings is
worrisome. The interplay of rules of the Code, the SARFAESI Act and the DRT Act
remains unresolved. Simultaneous proceedings before the civil court, the DRT and the
NCLT for recovery of the same debt is contributing to an inefficient insolvency regime.