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RECOVERY OF BAD DEBTS: COMPROMISE PROPOSALS LOKADALTS: The Banks/FIs can get in touch with State/District/Taluk Level Legal Service Authorities for organising Lok Adalts for arriving at compromise proposals for settlement of bad debts. There are no court fees involved when fresh disputes are referred to it. The cases pending in the Courts/DRTs can also be referred to it. If no settlement is arrived parties can continue with court proceedings. The decrees issued by Lok Adalts have legal status and are binding.

Coverage of Borrowers: All NPA accounts in doubtful and loss category with outstanding balance of upto Rs.20 lacs. Both suit filed and non-suit filed accounts. Settlement Formula: Lok Adalts settle cases on the spot. Bank/FI officer representing the institution should have sufficient powers to accept/reject compromise proposal worked out since objective is to settle arrears cases expeditiously. Thus banks should have their approved policy with regard to acceptable sacrifices. A decree should be sought from Lok Adalt for the principal amount and interest claimed.

The repayment period of the settlement amount should be within 1 to 3 years, to make an immediate impact on reduction of NPAs

The negotiated settlement should contain default clause, in terms of which, if the borrower does not pay instalments and interest regularly, the entire debt will fall due for payment and bank may initiate legal proceedings. After full payment of decree amount, a discharge certificate should be issued by bank/FI to the borrower.

DRT : Keeping in line with the International Trends and on recommendations of Narsimhan Committee with a view to help Financial Institutions to help recover their bad debts quickly and efficiently, the GOI constituted 33 Debt Recovery Tribunals and 5 Debt Recovery Appellate Tribunals across the Country. These Debt Recovery Tribunals are governed by provisions of the Recovery of Debt Dues to the Banks and Financial Institutions Act, 1993 (RDB Act 1993). The DRTs are located across the Country. Some cities like New Delhi and Mumbai have 3 DRTs;Kolkata and Chennai have 2 DRTs each. There are number of States that do not have any

DRT and the Banks in these States have to go to DRT in other States having jurisdiction over there area. Thus territorial jurisdiction of some DRTs is very vast. Each DRT is presided over by a Presiding Officer and he is the Judge of the rank of Distt. & Sessions Judge. He is assisted by a number of Officers of other rank but not necessarily having Judicial background. Each DRT has two Recovery Officers, who need not necessarily have judicial background but orders passed by them are judicial in nature and are appealable before the presiding officer of the tribunal.

As per the Act, recovery cases can not be filed in DRT for defaulted debts less than Rs. 1 lac but according to extant ceiling cases for defaulted debts for Rs. 10 lakh and above can only be filed in DRT. The cases can be filed by Banks and FIs in that DRT in whose jurisdiction cause of action has arisen i.e. where the defendants reside/location of their work place. If there are more than two defendants, case can be filed where any of the defendant resides/work. When more than one bank has claim against the borrower(s), one bank can file the case and other banks can join in the application at any stage. This provision helps in reducing

Multiplicity of proceedings. All the documents supporting the claim of the Bank e.g. Loan documents, Security Documents, Acknowledgement of Debt, Statement of Account and other material documents must be enclosed with the application. After scrutiny of the application, DRT will issue summons to the defendants to file a reply within 30 days of receipt of summons that why the relief asked for by the applicant should not be granted to him. Tribunal may on its discretion extend the time period for filing the reply by another 30 days. The defendant can also file counter-claim on the

Bank or set-off on the Bank. DRT will decide on the claim and counter-claim together. The cause of the counter-claim of the defendant need not be on the same cause. It can be independent or separate from the cause of action of the applicant. The proceedings of the DRT are summary in nature. As per the act Presiding Officer should endeavor to dispose off the application within 180 days. The Tribunal can also pass interim orders by way of injunction/stay/attachment, prohibiting defendants from transferring/alienating/ disposing off the property. The Tribunal if need be can also pass punitive orders for detention

Of defendants in Civil Prisons for not more than 3 months. The Tribunal is vested with powers of passing interim orders/Final orders with regard to payment of debt, including interest at n appropriate rate from the date due to date of realization. The Tribunal is empowered to appoint a receiver at any stage, either before or after issuing the recovery certificate The stage of Recovery comes into play once the Presiding Officer issues the Recovery Certificate and hands it over to the Recovery officer.

The Recovery Officer is the competent authority for recoveries by means of - By attachment and sale of movable/immovable property of the defendant. -By arrest and detention of the defendant -By appointment of a receiver for the management of the movable and immovable properties of the defendant. By issuing notices to third parties who owes any sum to the defendant to pay money or hold it on account of the defendant. DRT is a judicial body and not quasi-judicial as in the case of MRTP commission, Competition Commission , Consumer Protection Act etc.

DRT Appellate Tribunal The Appellate Tribunal will have one Chairperson appointed by the Central Government, supported by other officers & staff. Chairperson of Appellate Tribunal has powers to check whether presiding officers of the DRTs, under his jurisdiction are discharging their duties properly. If need be, it has powers to transfer, on its own or on application by the parties to transfer the case from one tribunal to other under its own jurisdiction. The Appellate Tribunal is the superior authority. The Bank or the defendant disgruntled by the judgement passed by DRT can prefer to file an

An appeal against the judgement in DRAT within 45 days from the date of receipt of the judgement copy. The time period of 45 days can be further extended by DRAT by another 45 days at its discretion on valid grounds. The appellate tribunal should also endeavor to dispose off the appeal within a period of six months. An appeal can be made by the parties against judgement of DRAT in High Court/Supreme Court.

SARAFESI ACT, 2002 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARAFESI) empowers banks /FIs to recover their non-performing assets, without the intervention of Court. The act provided three alternative methods of recovery of nonperforming assets: Securitisation Asset Reconstruction Enforcement of Security without the intervention of Court The provisions of this act are applicable to NPA loans with outstandings above Rs. 1 lac. NPA loan accounts where the amount is less than 20% of the principal and interes are not eligible

To be dealt with under this Act. Non performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security interest by way of pledge, lien, hire purchase, lease are not liable for attachment under this act. The act empowers the banks To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days from the date of notice. To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.

To ask any debtor of the borrower to pay any sum due or becoming due to the borrower. CAUTION: ANY SECURITY INTEREST CREATED OVER AGRICULTURAL LAND CAN NOT BE PROCEEDED WITH. If on receipt of demand notice, the borrower makes any representation or raises any objection, Authorised officer shall consider such representation or objection carefully and if he comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance within one week of receipt of such representation or objection. A borrower/guarantor aggrieved by the action of the Bank can file an appeal with DRT and then

With DRAT, but not with any Civil court. The borrower/guarantor is required to deposit 50% of the dues before filing the appeal. If the borrower fails to comply with the notice, the Bank may take recourse to one or more of these measures: Take possession of the security Sale or lease the right over the security Manage the same or appoint any person to manage the same.