Debt Recovery Tribunals

Presented by:
Dr. P. R. Kulkarni
 Introduction
Agenda
The Need For DRT….

The functioning of
DRT

Modes of recovery

Powers and authority

of DRT

Jurisdiction of courts

DRAT

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 Introduction
Business of banking depends upon lending to various individuals,
firms, corporate bodies and other organizations.
It can be under various types of loans such as term loans,OD, Cash
Credit, bank guarantee and other non- fund limits.
The prospects of repayment is supported by way of proper and valid
contracts.
Such contact between the banker and customers will from the basis
for granting of financial facilities and repayment.
The contract between the Bankers and customers are guided by the
Indian Contract Act 1872.
Which is force able in the court of law.


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 Debt
Debt means any liability which is claimed as a due
from any person by a bank or financial institutions.
The word debt means a sum of money due from one
person to other.

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 Relationship between Banker and debtor
A person or firm who is need of Financial Assistance
approaches to bank and would executing some documents.
Once such documentary formulates are concluded. The
relationship arises between the banker and customers.
This relationship is called the debtors- creditors relationship.
The bank will entitled to proceed against such customers as per
the law in force for recovery of its due.
Banks tend to obtain security for loans to customers.
Banks are not permitted as per the law to dispose of the
mortgaged immovable property.
In order to enforce its security(immovable) the bank has to

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approach theTribu.nals
Debt Recovery court of law December 8, 2021
 Machinery for Enforcement
Both the Narsimham and Tiwari committes (1981)
reports have recommended for the setting up special
tribunals for speedily recovery of NPAs.
The Recovery of Debt of Banks and Financial
Institutions Act (RDBFI ) was passed by Parliament in
1993.
There is provision in the Act to set up DRTs in various
part of the country.

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 Need for DRT-Objectives
Improve recovery of loans given by Banks &
Financial Institutions
Huge time required in an ordinary suit
Tribunals are made to deal with the cases in a
speedy manner
Nation losing away its valuable assets
Recovery procedure blocking significant portion
of funds
Nation’s Interest
Banks play developmental role in the economy

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 Functioning of DRT
The functioning of DRT can be divided under various
areas. They are:
Jurisdiction and Cause of Action
Impeding Provision
Form of Application
Summons to Defendant and Filing of Reply
Set-Off and Claim of the Defendant

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 Functioning of DRT
Counter Claim
Discretion to Pass Interim Orders
Power to Pass Attachment Order
Punitive Powers
Appointment of Receiver

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 Jurisdiction and Cause of Action
Banks and Financial Institutions can file the application in
DRT in whose limit a defendants actually and voluntarily
resides or carry on business.
The Tribunal is conferred with the jurisdiction based on
cause of action arising totally or partially.
In other word, the application can be filed in the tribunal
within whose limit the cause of action arises wholly or
partly.

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 Imp leading Provision
Any bank or financial Insinuation other than applicant
which is having the claims against the borrower can
join the applicant at any stage.
This provision avoids multiplicity of proceedings.

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 Form of Application
The application made into the tribunal should comply with
the conditions contained in section 19 of the Act.
Documents supporting to claims of the bank like loan
documents, security documents, acknowledgement of debt,
statement of accounts and other material documents must be
enclosed with application.
DRT will check the application as per check list and
incomplete application will be returned.

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 Summons to Borrower-Filling reply
Subsection 4 of section 19 requires that Tribunal shall
issue a summon to the defendants why relief prayed
should not be granted.
Borrower has to reply within 3o days of the notice.
The borrower is also allowed to appear the hearing and
present the written statement.

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 Counter Claims
If borrower has a counter claim, a separate suit had to
brought against the bank in the civil court in respect
application filed in DRT.
It is now possible to entertain and decide the claims and
counter claims of the borrower together on the same
application.
Borrower need not go for relief to civil court. He can make
the counter claim in the same application.

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 Discretion to pass interim order
The Tribunal can pass the interim order or issue the
injunction against the borrower.
This will help to restrain the borrower from transferring or
disposing of any property or assets.
The Tribunal has also power of issuing attachment order.
But Tribunal should be satisfied that borrower is about
dispose the property or likely to cause any damages.

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 Punitive Power and Appointment of receiver
Whenever the order of Tribunal are violated or flouted,
Tribunal can pass an order for detention of borrower.
Sub Section 18 0f section 19, gives power to Tribunal
to appoint the receiver at any stage either before or
after issuing recovery certificate.

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 Transfer of recovery certificate and disposal of application
If the property is situated within the Jurisdiction of two
or more Tribunal than copies of recovery certificate
will be to such other Tribunal for execution.
The objective of the Act is to recover the claims of the
bank speedily.
The time limit for disposal of application in the Act is
therefore fixed for 180 days.

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 SECTION 19
 Application of Section 529A of the Companies Act, 1956.
 Interim Orders : Payment of Interest from the date on or before
which payment of the amount is found due up to the date of realization.
 Service Of Free Copy: Subsection 22 of Section 19.
 Transfer of Recovery Certificate: Subsection 23 of section 19.
 Expeditious Adjudication and Recovery: Difference in Mode
of recovery under the CPC and RDBFI.
 Disposal of Application within 180 Days: Subsection 25 of
section 19, Duty of presiding officer.
 Powers to Pass order to meet Ends of Justice: Subsection 25
of section 19.

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 Modes Of Recovery
 By attachment and sale of movable and 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.

Exceptions
 Necessary wearing apparel, Cooking vessels, beds,
Personal ornaments. Etc.
 Tools, Books of artisans
 Stipends/Gratuities/allowance
 Wage of labor,
 Money payable under a policy of insurance

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 Jurisdiction and Powers of the Tribunal

Jurisdiction of the DRT , under section 17,18 and 25 of the

RDBFI (Recovery of Debts Due to Banks and Financial
institutions act) Act can be divided into a) Adjudication b)
Execution.

A. Adjudication
 Empowered by RDBFI Act to decide on applications of
recovery by banks/FI for any amount above Rs. 10 lakh.
 The tribunal has to decide on the liability of the defendant and
then issue the Recovery certificate (under Sec 19(22)).
 Sec.18 of the RDBFI Act ousts the jurisdiction of any other
court and transfers the power of adjudication solely to the DRT.
 However the exclusion does not include the powers of the High
Court and Supreme Court exercising power under Art. 226 and
227 of the constitution.

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 Jurisdiction and Powers of the Tribunal…contd.

B. Execution
The RDBFI Act under Sec. 25 to 30, does not allow
banks/FI to go to other courts of law or any other
authority when the basic liability of the defendant is
being decided by the DRT.
Tiwari committee recommendations, on exclusive
authority of execution to the DRT.
The recovery certificate is to be executed by the
recovery officer and no dual jurisdiction, from any
other court of law, is allowed at any stage.
Thus adjudication and execution of recovery
certificate lies under the sole jurisdiction of the DRT
and the recovery officer
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 Jurisdiction of Civil Courts, High Court and Supreme Court
A. Civil Court
 A suit for recovery, with respect to the movable/immovable property, may
be instituted in a civil court within whose jurisdiction any portion of the
property is situated.
 However, the suit is subject to pecuniary jurisdiction of the particular court.
 Sec. 20 says, that all applications filed by banks/FI, for recovery of amount
above Rs. 10 lakh, will be dealt by the DRT under RDBFI Act.

B. High Court
 The high court has full power throughout the territory under its jurisdiction.
 It may issue directions, orders or writs, against any Government, or
authority for the enforcement of any rights conferred by Part III of the
constitution.
 However the person/authority against which the writ is issued amenable to
its territory by residence or location (Article 226). ,

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 Jurisdiction of Civil Courts, High Court and Supreme Court…contd.

C. Supreme Court (Remedies for the enforcement of rights

conferred by Article 32)
 The Supreme court have the power to issue directions, orders
or writs for the enforcement of any of the rights.
 The right guaranteed by this article shall not be suspended
except by a constitution provision.

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 Authority of the DRT
Presiding officer can exercise his authority to meet
the ends of justice
It also can exercise its powers and give directions
to prevent the abuse of its process or secure the
ends of justice, under Sec 19(25).

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 The Appellate Tribunal (DRAT)
 The central government has empowered the DRATs to hear appeals
against the orders of the DRTs.
 The DRATs have control and authority over the DRTs within their
respective jurisdictions
 There are 4 DRATs functioning at Mumbai, Kolkatta, Chennai and
Delhi.
 The Chairperson of the DRAT
 The DRAT is headed by one Chairperson, appointed by the central
government.
 The Chairperson of the DRAT check whether the Presiding Officers
of DRTs under it are functioning properly.
 He may also transfer the cases from one tribunal to the other within
the DRATs jurisdiction
 The appeal in DRATs is registered only after a deposit of 75% of the
debt amount.
 The appeal should be made within 45 days from receiving the order.

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 Procedures And Powers Of DRT & DRAT

Section 20 of RDBFI Act

Principles of Natural Justice
(i) audi alteram partem ( No person shall be condemned
unheard
(ii) nemo debe esse judex in propria causa ( shall act as
judge in his own cause)

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 Powers Vested Under Sec 22 (2)
 Summoning

 Discovery of documents
- discovery by interrogation
- discovery by inspection

 Commission for examination of witness

- residing outside its jurisdiction
- leaving the limits of tribunal
- govt. servant cannot attend tribunal
- who is imprisoned
- due to sickness & infirmity

 Commission for examination of documents

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 ……Contd.
Reviewing the decision

Provisions of Order 9 of CPC

- empowered to dismiss an application

Application of the Indian Limitation Act

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 Overriding Effect Of RDBFI Act,1993 On
Other Acts
The non-obstante clause

- Industrial Finance Corporation Act, 1948

- The State Finance Corporation Act, 1951
- The Unit Trust of India Act, 1963
- The Industrial Reconstruction Bank of India, 1984

- The Sick Industrial Companies

(Special Provisions) Act, 1985
- The Small Industrial Development Bank of India
Act, 1989
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 ……Contd.
Significance Of The Overriding Provision

Comparison With The Companies Act, 1956

- also a special act
- contains non-obstante clause

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 Lok Adalat

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  Lok Adalat (people’s courts), established by the government
settles dispute through conciliation and compromise.
 The First Lok Adalat was held in Chennai in 1986.
 Lok Adalat accepts the cases which could be settled by
conciliation and compromise, and pending in the regular courts
within their jurisdiction.
 The Lok Adalat is presided over by a sitting or retired judicial
officer as the chairman, with two other members, usually a
lawyer and a social worker.
 There is no court fee. If the case is already filed in the regular court,
the fee paid will be refunded if the dispute is settled at the Lok Adalat.

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 The procedural laws, and the Evidence Act are not
strictly followed while assessing the merits of the claim
by the Lok Adalat.
Main condition of the Lok Adalat is that both parties in
dispute should agree for settlement.
The decision of the Lok Adalat is binding on the parties
to the dispute and its order is capable of execution
through legal process.
No appeal lies against the order of the Lok Adalat.
Lok Adalat is very effective in settlement of money
claims
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 OTS
 The revised guidelines will cover all NPAs in SME sector which have
become doubtful or loss ,with outstanding balance of Rs.10 crore and
below on the date on which the account was classified as doubtful.
 The guidelines will also cover NPAs classified as sub-standard which
have subsequently become doubtful or loss where the outstanding
balance was Rs.10 crore and below on the date on which the account
was classified as doubtful.
 These guidelines will cover cases on which the banks have initiated
action under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 and also cases pending
before Courts/DRTs/BIFR, subject to consent decree being obtained
from the Courts/DRTs/BIFR.
 Cases of wilful default, fraud and malfeasance will not be covered.

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 Payment
The amount of settlement arrived at in both the above
cases, shall preferably be paid in one lump sum.
In cases where the borrowers are unable to pay the
entire amount in one lump sum, at least 25% of the
amount of settlement shall be paid upfront and the
balance amount of 75% should be recovered in
instalments within a period of one year together with
interest at the existing Prime Lending Rate from the
date of settlement up to the date of final payment.

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 Sanctioning Authority
 The decision on the one-time settlement and consequent
sanction of waiver or remission or write-off shall be taken by
the competent authority under the delegated powers.
 Banks shall follow the above guidelines for one-time
settlement of all NPAs covered under the scheme, without
discrimination and a monthly report on the progress and
details of settlements should be submitted by the concerned
authority to the next higher authority and their Central
Office.
 Banks shall submit a report on the progress in the one-time
settlement of chronic NPAs under the revised guidelines
every quarter to the Board of Directors.

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 Corporate Debt Restructuring
 Detailed guidelines were issued by RBI on Corporate Debt
Restructuring System for facilitating timely and transparent
mechanism for restructuring corporate debts of viable
corporate entities affected by internal or external factors,
outside the purview of BIFR, DRT and other legal
proceedings, for the benefit of all concerned.
 Set up a small group consisting of bankers and others,
under the chairmanship of Deputy Governor, Reserve Bank
of India to suggest measures to make the operations of the
Corporate Debt Restructuring (CDR) mechanism more
efficient

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  Inspite of their best efforts and intentions, sometimes corporates
find themselves in financial difficulty because of factors beyond
their control and also due to certain internal reasons.
 For the revival of the corporates as well as for the safety of the
money lent by the banks and FIs, timely support through
restructuring in genuine cases is called for.
 However, delay in agreement amongst different lending
institutions often comes in the way of such endeavours.
 Based on the experience in other countries like the U.K., Thailand,
Korea, etc. of putting in place institutional mechanism for
restructuring of corporate debt and need for a similar mechanism
in India, a Corporate Debt Restructuring System was evolved,

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 Objective
The objective of the Corporate Debt Restructuring (CDR)
framework is to ensure timely and transparent mechanism
for restructuring the corporate debts of viable entities
facing problems, outside the purview of BIFR, DRT and
other legal proceedings, for the benefit of all concerned.
In particular, the framework will aim at preserving viable
corporates that are affected by certain internal and
external factors and minimize the losses to the creditors
and other stakeholders through an orderly and coordinated
restructuring programme.
   

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 Structure
CDR system in the country will have a three tier
structure:
 
CDR Standing Forum and its Core Group
CDR Empowered Group
CDR Cell

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 CDR Standing Forum

 The CDR Standing Forum would be the representative general

body of all financial institutions and banks participating in CDR
system.
 Forum will be a self- empowered body, which will lay down
policies and guidelines, and monitor the progress of corporate debt
restructuring.
 The CDR Standing Forum shall comprise of Chairman &
Managing Director, Industrial Development Bank of India;
Chairman, State Bank of India; Chairman, ICICI Bank Limited;
Chairman, Indian Banks' Association and Executive Director,
Reserve Bank of India as well as Chairmen and Managing
Directors of all banks and financial institutions participating as
permanent members in the system.

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 The CDR Standing Forum shall meet at least once
every six months and would review and monitor the
progress of corporate debt restructuring system.
The Forum would also lay down the policies and
guidelines to be followed by the CDR Empowered
Group and CDR Cell for debt restructuring and would
ensure their smooth functioning and adherence to the
prescribed time schedules for debt restructuring.

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 CDR Empowered Group

The individual cases of corporate debt restructuring

shall be decided by the CDR Empowered Group,
consisting of ED level representatives of IDBI, ICICI
Bank Ltd. and SBI as standing members, in addition to
ED level representatives of financial institutions and
banks who have an exposure to the concerned
company.
The CDR Empowered Group will consider the
preliminary report of all cases of requests of
restructuring, submitted to it by the CDR Cell.

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  After the Empowered Group decides that restructuring of the
company is prima-facie feasible and the enterprise is potentially
viable in terms of the policies and guidelines evolved by
Standing Forum, the detailed restructuring package will be
worked out by the CDR Cell in conjunction with the Lead .
 CDR Cell :
 The CDR Standing Forum and the CDR Empowered Group
will be assisted by a CDR Cell in all their functions.
 The CDR Cell will make the initial scrutiny of the proposals
received from borrowers / lenders, by calling for proposed
rehabilitation plan and other information and put up the matter
before the CDR Empowered Group,

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 Eligibility criteria

The scheme will not apply to accounts involving only one

financial institution or one bank.
The CDR mechanism will cover only multiple banking
accounts / syndication / consortium accounts with outstanding
exposure of Rs.20 crore and above by banks and institutions.
 The Category 1 CDR system will be applicable only to
accounts classified as 'standard' and 'sub-standard‘.
 In no case, the requests of any corporate indulging in wilful
default, fraud or misfeasance, even in a single bank, will be
considered for restructuring under CDR system.
 

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 BIFR cases are not eligible for restructuring under the
CDR system.
However, large value BIFR cases, may be eligible for
restructuring under the CDR system if specifically
recommended by the CDR Core Group.

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Thank you