What are Debt Recovery Tribunals (DRTs)?
Debt Recovery Tribunals are Tribunals which facilitate the debt recovery involving banks and other financial institutions with their customers.
DRTs can now take cases from banks for disputed loans above Rs 20 Lakhs.
Debt Recovery Tribunals (DRTs): Background
Bad loans and Non-Performing Assets (NPAs) are a perpetual source of trouble for banks in India. This was an acute problem in the period before 1993, as such cases were listed in civil courts where the proceedings used to drag on for years.
In 1993, the Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act was passed which led to the establishment of Debt Recovery Tribunals (DRT) to facilitate the debt recovery involving banks and other financial institutions.
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act passed in 2002 also provides access to DRTs.
Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act
- The RDDBFI Act provides speedy redressal to lenders and borrowers through the filing of Original Applications (OAs) in Debts Recovery Tribunals (DRTs) and appeals in Debts Recovery Appellate Tribunals (DRATs).
What are Debt Recovery Tribunals (DRT)?
- DRTs and DRATs are established by the Central Government and consist of one person each referred to as the Presiding Officer of the Tribunal and the Chairperson of the Appellate Tribunal respectively.
- DRTs are empowered to go beyond the Civil Procedure Code and pass comprehensive orders. It can hear cross-suits, counterclaims and allow set-offs.
- DRTs were empowered to adjudicate claims equal to or greater than ten lakh rupees. This limit was raised to twenty lakh rupees in 2018.
- After adjudication, the DRT issues order and Recovery Certificate, certifying the amount payable by the borrower. This is executed by Recovery Officers as per the procedure for recovery of income tax.
- There are 39 DRTs and 5 DRATs at present.
Jurisdiction of Debt Recovery Tribunals
- DRTs can entertain applications from banks and financial institutions for recovery of debts which are due to them.
- The banks may make an application to the Tribunal within the local limits of whose jurisdiction the defendant resides or carries on business.
- The Act bars all other Courts from the adjudication of matters relating to debt recovery apart from the Supreme Court and High Court.
Proceedings of Debt Recovery Tribunals
- Banks need to make an application to the DRT which has jurisdiction in the region in which the bank operates and pay the required fees.
- The defendant shall present a written statement of his defence before the first hearing and set up a counter-claim during the course of the hearing.
- The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such interim or final order.
- The interim order passed against the defendant can restrict him from disposing or transferring his property without the prior assent of the Tribunal.
- DRT after hearing both the parties and their submissions would pass the final judgment within 30 days from hearing. DRT will issue a Recovery Certificate within 15 days from the date of judgment and pass on the same to Recovery Officer.
- The Tribunal may direct the conditional attachment of the whole or any portion of the property specified by the applicant.
- The Tribunal may also appoint a receiver and confer him all powers to defend the suit in the court and to manage the property.
- Where a certificate of recovery is issued against a company registered under the Companies Act, 1956 the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors.
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002
- Even after the enactment of the RDDBFI Act, problems like lack of liquidity, asset-liability mismatch, and long-term blocking of assets persisted. Banks could not recover their dues to the extent expected even after the constitution of DRTs. This led to the enactment of the SARFAESI Act in 2002.
- This Act provides access to banks and financial institutions covered under the Act for recovery of secured debts from the borrowers without the intervention of the Courts at the first stage.
- When a loan is classified as a Non-Performing Asset (NPA), a notice is sent to the borrower. If the borrower fails to comply with it, then the creditor is entitled to take ownership of the secured asset including the right to transfer the 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.
Issues with Debt Recovery Tribunals
- Most DRTs are over-burdened with some Tribunals in major cities handling far more cases it can ideally handle at a given time. This is adversely affecting the success rate of the Tribunals.
- DRTs got tangled with peripheral issues such as state dues, dues of workmen, etc.
- Borrowers also tend to adopt delaying tactics by filing claims against lenders in civil courts.
- Some courts have interpreted some provisions of the Act to be in favour of debtors and invoking principles of natural justice to protect debtors.
- DRTs are not equipped to deal with complex questions of law and evolving methods and techniques of committing fraud.
- Less than 40 DRTs are established right now and they are not sufficient to handle the large volume of cases arising across the country.
Corrective Measures connected with DRTs
- Amendments made to the RDDBFI Act in 2016
- It provides time limits in the various steps of the adjudication process.
- Central Government is empowered to uniform procedural rules across all DRTs and DRATs.
- Increasing the retirement age of Presiding Officers and Chairpersons.
- Banks to file cases in DRTs having jurisdiction over the area of the bank branch where the debt is pending, instead of the defendant’s area of residence or business.
- Insolvency and Bankruptcy Code give powers to DRTs to consider cases of bankruptcy from individuals and unlimited liability partnerships.
The rising NPAs and debt issues are hurting the banking industry and the economy as a whole.
The RDDBFI Act is one of the first creditor friendly mechanisms put in place where the banks can resort to confiscating secured assets via DRTs.
Despite its many shortcomings, DRTs must be strengthened because failure in debt management will negatively impact banking, investment and future economic development of the country.
Measures like establishing more DRTs, specifying strict timelines for various stages of adjudication and equipping them to deal with complicated cases will go a long way in clearing the pending cases.
Further, the RBI also needs to develop policy measures to address NPA issues.