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Abstract

This paper mainly discusses the scenario in the current legal system with respect to loan repayments and the laws related to them. The foundation of the debt recovery tribunals was only to ease the prompt recovery of debt payable back to Indian banks and finance house or to recover the Non- Performing Assets (NPA) i.e. who took a huge loan from the Indian banks and at last unable to pay off the loan amount then these tribunals sell off the assets of the fraudster for such recovery and also punish them. And the debt recovery tribunals act as a thread that holds the Indian banking system with the Indian Judiciary together. Also, I will be going to discuss in a brief the various related statutes such as SARFAESI ACT, 2002 and RDDBFI ACT, 1993 which plays a great role while understanding the topic. The most important part of this research paper will be the role of Debt Recovery Tribunals, how they work? Their jurisdiction, Process of application, and efficiencies were created after the judgment given by the tribunals in the due proceeding of the regaining of the Non-Performing Assets. And at last, will conclude my topic the suggestions from my point of view and the overview of the above-discussed topic.

Introduction

In many developing countries and changing financial states, the justice, and justice delivering system is getting worst. A lot of cases are pending at the different levels of courts in India and all over the world. It is just because of delay in reporting, hearing of cases and justice, corrupt system and most important some officials are not committed and loyal to their work. And as a result of this above fact financial institutions and the Indian banking system can’t rely upon the Indian judiciary. And to improve and investigate the judicial system of the country the Indian government in 1933 passed an act for the formation of the debt recovery tribunal throughout the country which mainly handles the cases related to recovery only. These tribunals are quasi-judicial and build up for cases filed by the banking and finance houses against the levanter scroungers. The DRT gives attention to a smooth and speedy trial of the cases filed before the court.

After the independence of the nation, each sector of the country went under a sudden recession and all the institutions are unstable. So building and reviving them back all the intuition approach the banks and financial institution for the loan, and the loan was provided under the guidelines followed by the Reserve Bank of Indian depending upon the eligibility of the company to company and when it comes to repaying of the loan they all have nothing to pay in return and got bankrupt, which leads the monetary reserves and finance houses to sue against such default borrower. And due to this delay in justice banks won’t be able to recover their damages which in return leads to the bankruptcy of the bank and which further leads to a fall in the economy. So keeping this view in mind the government sets up a committee for the reform in the financial sector. The committee was headed by Shri M. Narasimham which results in constituting the special courts or tribunals adjudicating the matter only related to the particular matter related to debt recovery.

Again a committee headed by Shri T Tiwari held that setting of these special tribunals can’t stop such cases related to debt recovery we also have to change the laws and make them stricter. Then the DRT was set up referring Article 247[1] of the Indian constitution[2]. And Recovery of Debts Due to Banks and Financial Institutions Act (RDDBTI), 1993[3] was instituted.

Indian Banking System

In a country like India where every citizen looks towards the bank and financial institution for their small – little dreams to complete. The Indian monetary reserves and finance houses were expected to full fill their objectives and live upon their expectations. And while completing the expectations of the citizen leads to a plenty of non-performing loan repayments in Indian monetary reserves and finance houses. Economic sector banks which have only around 25-30% assets in the Indian banking system, declared that 10% of their lending as non-performing or non-repayment. When India starts commencing the reforms in the Indian finance houses and steps towards liberalizing the Indian banks. Narasimham Committee recommended the strict laws or otherwise this nonpayment of debts will put at risk all the financial system at stake. RBI suggested many measures to control this situation and established an objective classification system where initially the assets were subjected as the Health Code system[4] but now onwards the lending amount should be declared as non-performing if the settlement of interest or repayment of the loan according to the installments were unpaid for a specified period[5]. These initiatives help the Indian monetary reserves and finance houses to reduce their losses of loan repayments and reinstructing the banks. As most of the loans from the Indian monetary reserves and finance houses were held down the insurance which made the assets liquidate.

Non- Performing Assets (NPA) – An overview

In initial times the finance houses had to operate with a lot of cases of non-payment of loans and to recover them the bank move to the courts. But from the past 10-12 years there is a sudden increase in the number of non-performing loans resulting from many factors. To overcome these issues Non-performing Assets (NPA) was instituted when the bank was unable to recover the amount from the defaulters, where, the person fails to pay back the principal amount as well as the interest of that. And when the installments dues for more than 90 days, then the assets will declare as NPA.

The Tiwari Committee which was established in 1981 worked upon and the issues and suggested the establishment of the Debt Tribunals, and also suggested that they should not work on the laws of the Code of civil procedure[6] but followed on the principle of natural justice. And when the Narasimham Committee was formed in 1991 they recommended a separate act for the Special Debt Tribunals known as Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act[7], which came into effect on June 24th, 1993.

The suit against the defaulter can be filed before the tribunal only if the amount value is greater than Rupees 1 million. The objective to set an amount barrier is only 1) First, to restrict the plenty of cases in the DRTs, and 2) secondly, DRT wants the banks to recover their large debt recoveries from the big corporate defaulters. Also, the judges and lawyers in the DRTs must be qualified the same as in the judicial courts.

The case which is filed in DRTs can also be filed Securitization and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002[8]. Referring the act, the lender takes the charge or custody of the belongings of the borrower when he fails to pay the installments of non-payments.  But, sometimes there are cases wherein the belongings are not enough to clear the debt then the lender has the option to file a case in DRT against the defaulters to recover the remaining debt dues. Also, the defaulter carry the right to appeal referring section 17[9] of the SARFAESI Act[10].

Legal Mends & Loan Repayments Repercussions of Debt Recovery Tribunals In India

Debt Recovery Tribunals

Analyzing the international nations in resolving the Indian monetary reserves and finance houses recovering the debt sum back from the fraudster smoothly and quickly, the government of India also constituted the 39 Across the country, there are 5 Debt Recovery Tribunals (here referred to as the “DRT”) and 5 Debt Recovery Appellate Tribunals (here named to as the “DRAT”). The banking system of the nation gets evolved when the people quit the practice of lending and adopt the process of economic transactions. Without a well-settled credit system, it’s hard to expect growth in the economy of the nation. The banking system in India continuously facing issues related to the non-payment of the loan amount and at last, it takes a long waiting in trial courts for justice and recovering the NPA. These things forced the government to establish the Special courts i.e. Debt recovery tribunals.

Current scenario and position of DRT in India

Helping the Financial institutions of the country the government established the DRT throughout the country. As of now, there are a total of 39[11] Debt Recovery Tribunals (hereinafter referred to as the ‘DRT’) and 5 Debt Recovery Appellate Tribunals (here named to as the ‘DRAT’) across the country. Some of the cities have also more than one Debt tribunals such as New Delhi, Chennai, Kolkata, and Mumbai, Chandigarh have three while Ernakulam, Hyderabad, Bengaluru and Ahmedabad have two Debt Recovery Tribunal each. One Debt Recovery Tribunal each has been constituted at Dehradun, Jabalpur, Lucknow, Guwahati, Allahabad, Patna, Ranchi, Jaipur, Cuttack, Siliguri, Visakhapatnam, Aurangabad, Pune, and Nagpur. In addition, all DRTs and DRATs have adopted the e-DRT initiative. The goal of this initiative is to increase access, efficiency, and transparency. E-DRT allows users to access e-filing, e-payment of fees, the creation of cause lists, and a case information system that allows them to check case status, orders, and verdicts[12]. All the DRT are being constituted based on the number of cases before the Tribunal.

And analyzing the current scenario the Supreme Court of India[13] uphold the rights of the Indian monetary reserves and finance houses and ordered the various high courts not to obstruct in the cases related to debt recovery from the borrower. Also, decided that the Indian monetary reserves and finance houses can directly sue the warrantor of the particular credit amount even without initiating any legal action against the borrower of the lending amount.

“It cause for a great concern that despite repeated declarations by this court, the HCs continue to overlook the availability of statutory remedies under the Debt Recovery Tribunal Act, 1993, and the SARFAESI Act, 2002, and exercise jurisdiction under Article 226 for passing orders that have a serious adverse impact on the right of banks and other financial institutions to recover their dues[14],” the SC said. 

Tribunals all over the country initially run with passion solving and cases of debt recovery but with the passage of time borrowers use many different tricks, tactics and legal methods to get out of the matter or delay the process of recovery. The apex court also said that the referring article 226 of the Indian constitution, the high courts are unnecessarily interference in the proceeding of the debt tribunals by giving stays on different debt recoveries under the writ petitions filed by the defaulters.

SARFAESI ACT, 2002 and RDDBFI ACT, 1993

The Recovery of Debts Due to Banks and Financial Institutions (RDDBFI Act), 1993[15] authorizes the powers to banks to plead against the defaulters for the repayment of the loan and recovery of NPAs. Remarking the RDDBFI Act, the tribunals determine, decide and pass the judgment of the case. Whereas Securitization and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002[16] itself provides the procedure to the Indian monetary reserves and finance houses to decide and reclaim their NPA from the borrowers. And after complete decision taken by banks the defaulter have, you carry the right to appeal to a tribunal under the SARFAESI Act.

Also, only the requirements of the SARFAESI statute apply to Indian monetary reserves and finance houses when the assets of the defaulter have been secured[17] not I all the cases. The Indian monetary reserves and finance houses are given the power covered by the section 13 of SARFAESI act.

 Process of Application and Recovery

There are two ways through which the Indian monetary reserves and finance houses can plea the debt tribunal i.e. through the direct application or through the SARFAESI route.

> Through Application

This operation kicks off with applying DRT along with the requisite fees. Then the tribunal will be decided according to the jurisdiction of the tribunals. Currently have 39 debt tribunals at 25 different locations. Here section 19 of the SARFAESI act provides option to the monetary reserves [18] and financial institutions to choose any DRT (where the business is being carried out by the borrower) in the application. And the case will be filed against the defaulter if the particular DRT has the jurisdiction for the same. Around total of 180 days is recommended to complete the whole process of debt recovery including trial.

> Through SARFAESI route

The application for debt recovery can also proceed with the Securitization and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002[19]. The SARFAESI Act was put forwarded by the two committees i.e. Narasimham Committee – II (1998) and  Andhyarujina Committee (1999). This act helps to secure the privilege of the banker. Under this process according to section 13 of the SARFAESI Act[20], 2002 a legal notice is sent by the banks and financial institution to the defaulters to repay the whole loan amount in one payment in a prescribed time i.e. 60 Days, failing which will lead the institution to act upon their rights according to the section 13(4) which declares the lending amount as Non – performing Assets (NPA). Initially, there is no right of appeal is given to the Respondent but after the amendment, they have given the right under section 3A[21] of the SARFAESI Act that they can appeal against the institutions[22]. Where the duration of 15 days is given to reply the notice of appeal given by the borrower. And if the defaulter declines to pay the complete – debt then the bank has right under sub-section 4 of section 13 of the Act where the lender can recover remaining debt by selling the creditors secured assets[23] in auctions and, the debtor has the right of appeal in front of DRT opposing the creditor’s step[24].

The appeal can be made to DRAT against the order/judgment given by the DRT within a maximum of 45 Days. Also, the appeal is too costly as it requires  first deposit 75% of the total amount passed in the order by the DRT then only it will be filed to the DRAT. The DRAT may be able to reduce or eliminate this fee. The deposit is equal to half of the secured creditor’s demand or the amount determined in the DRT order, whichever is smaller, for appeals to DRAT that begins in SARFAESI Act actions. The deposits, unlike those required by the RDDBFI, cannot be waived and may only be turn down to the level of 25% of the entire amount.

Inefficiencies in recovery process

A bank recovers its debts under the DRT by selling the asset at a public auction. Following the establishment of a reserve price, the bank is obligated to promote the auction in significant media. Potential buyers get one day to see the item and double-check its papers.

Bidders are required to provide a refundable of earnest money deposit (EMD), which can be 15% of the secured price. After winning the bid, the winning party must pay the outstanding amount within the time range provided by the finance houses. The EMD is not returned if the bidder refuses or is unable to pay the remaining amount. Following the asset’s successful auction, there is a 30-day cooling period. An injunction may be requested at this time. The asset’s owner, for example, may contend that the price is lower than expected or that the product was not promoted correctly. Other bidders may protest the auction on the grounds that the bank failed to submit enough documents during the property inspection.

The bank may re-sell the asset if it does not sell for the anticipated price. On rare occasions, banks may choose to accept a price lower than the awaited price. The asset’s illiquidity, as well as its unique worth to the original borrower, might have unexpected implications. The asset’s maximum value, for example, may belong to the original owner, in which case the lending amount is essentially turn down to the belonging worth to the defaulter, who then has the alternative of purchasing the property back at a lesser price than what was originally payable under the due amount of loan. These carelessness may occur in a variety of bankruptcy processes, thus they aren’t specific to DRTs or India. Protracted legal bankruptcy processes, on the other hand, provide additional possibilities for such scenarios to emerge.

SUGGESTIONS

The following are some suggestions for improving the effectiveness of Debt Recovery Tribunal Accountability:

i. The Debt Recovery Tribunal in the state is not subject to the supervision of the High Courts. A writ petition against a Debt Recovery Tribunal ruling or verdict can be sued in the High Court. As a result, the Debt Recovery Tribunal is unaccountable to any government agency. There is no particular framework to ensure that the disputes before the forum, are addressed in a timely and effective manner. In actuality, there is an additional safeguard to ensure the Tribunal’s accountability.

ii. The DRAT should explore the reasons including the backlog of cases and ensure that they are resolved quickly.

iii. The Ministry of Finance is responsible for appointing personnel to the Tribunal. To facilitate the Tribunal’s reliable work, the government must make timely appointments. In addition, the ministry must guarantee that prominent positions such as Registrar and Presiding Officer are filled by people who have a strong knowledge of the legislation and the debtor management process.

iv. Before being approved, stay petitions must be thoroughly examined. Allowing Stay on Petitions in an abundance of cases has been recognized as one of the major causes of the DRT’s case backlog. Adjournment should be tightly controlled as well. The fundamental objective of the Debt Recovery Tribunals would be jeopardized if they issued adjournments in the same way that Civil Courts do.

Conclusion

According to the findings of the study, cases before a Debt Recovery Tribunal are delayed excessively, which goes against the principle and goal of the tribunal’s foundation. Banks have expressed dissatisfaction with the procedures in place to ensure a swift recovery. The number of lawsuit claims is on the rise. Extremely significant, and revisions to the current system are urgently needed. The pace of pending cases before the Tribunal would continue to increase unabated until the system is changed. A situation like this will jeopardize the financial sector significantly. Debt Recovery Tribunals (DRTs), which were instituted to aid finance houses, are now in operation.in recovering debts quickly without having to go through the long process of traditional civil courts, emerges to be causing more harm than good to banks. Considering the following fact that the total amount recovered from cases resolved under DRTs in 2019-20 was Rs 50,950 crores, with a total outstanding debt of Rs 14, 36,600 crores. In other words, the sum recovered was just 18% of the total amount at stake. Furthermore, even though the legislation requires matters before DRTs to be resolved within only about a fourth of the cases that were unsettled at the start of the year were settled in the first six months. The minimal number of DRTs and DRATs to which DRT rulings can be appealed is one issue. Only five DRATs exist in the country, even though there are 39 Debt Recovery Tribunals. The adjudicating officer’s performance metrics might also be utilized to improve the system’s efficiency. Several others suggested that stay applications be thoroughly examined before being approved, since there have been instances when lawyers have taken advantage of the Act’s flaws and pleaded for stays, resulting in a backlog of cases. “In sequence for banks to recover existing loans and make new advances at cheaper rates, DRT efficiency must be strengthened. There is no system in place at the moment to ensure that the tribunal resolves the matter on time. According to Shashwat Sharma, partner (Management Consulting), KPMG, “there is a significant need to bring in more responsibility for the DRT.” 

Notes:

[1] Parliament has the authority to establish new or additional courts for the administration of justice.

[2] Indian constitution, 1950.

[3] Drat, http://www.drat.tn.nic.in/Docu/RDDBFI-Act.pdf (Last visited on 7 feb,2022)

[4] RBI advised indicating the quality (or health) of individual advances under the eight categories, with a health code assigned to each borrower account.

[5] This pre-specified period after a notification decreased by one quarter (90 days).

[6] The Code of Civil Procedure, 1908

[7] Recovery of Debts Due to Banks and Financial Institutions (RDDBFI Act), 1993.

[8] Legislative.gov.in, https://legislative.gov.in/sites/default/files/A2002-54.pdf (Last visited on 8 feb, 2022)

[9] Gives a period of 45 days from the date of the receipt of the possession notice under Section 13(2) of the Acct the Borrower can file an appeal before the Debt Recovery Tribunal.

[10] Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act).

[11] drt.gov.in, https://drt.gov.in/drtlive/composition.php

[12] drt.gov.in, https://drt.gov.in/drtlive/composition.php

[13] Supreme Court of India, 1950.

[14] Smti Madhu Bajaj vs.  State Bank of India & Ors. CRP No. 2 of 2018

[15] Recovery of Debts Due to Banks and Financial Institutions (RDDBFI Act), 1993.

[16] Securitization and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002

[17] It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans

[18] Section 2(e) of the RDDBFI Act defines banks as (i) banking companies; (ii) corresponding new banks (; iii) State Bank of India (iv) subsidiary bank (v) Regional Bank (vi) Multistate co-operative bank. Section 2(h) of the RDDBFI Act defines a financial institution as (i) a public financial institution within the meaning of Section 4A of the Companies Act, 1956; (ii) such other institution as the Central Government may, having regard to its business activity and the area of its operation in India by notification, specify.

[19] Securitization and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002

[20] Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as on- performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub- section (4).

[21] On receipt of the notice under sub‑section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non‑acceptance of the representation or objection to the borrower.

[22] The amendment was motivated by the observations made by the Supreme Court in Mardia Chemicals vs. Union of India (AIR 2004 SC 2371).

[23] See, Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

[24] Per Section 17 of the SARFAESI Act, borrowers can appeal against any action taken by the creditor under section 13 (4).

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