Debt Recovery Tribunal (DRT)

In a growing era of the economic structure of India, credit plays an essential role in promoting and boosting economic activity. Financial institutions and banks lend money to individuals for various purposes and to various businesses to support various economic and financial needs, such as infrastructure development, business expansion, and personal consumption. However, the rise in non-performing assets (NPAs) has posed a major and effective threat to the financial health of lending institutions. To address this issue, the Government of India established Debt Recovery Tribunals (DRTs) under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). The DRTs are specialized quasi-judicial bodies that aim to expedite and form an effective system of loan recovery and reduce the burden on civil courts.

Background and Need for DRTs

Before the establishment of DRTs, recovery of loans used to get through civil courts which was a lengthy and cumbersome process. Banks and financial institutions often had to wait for a several years for judgments, which resulted in mounting NPAs and reduced liquidity in the financial sector. Recognizing the urgency of the situation, the Tiwari Committee (1981) and the Narasimham Committee (1991) recommended setting up specialized tribunals for speedy adjudication and recovery of debts.

This led to the enactment of the RDDBFI Act in 1993, which created a legal framework for DRTs to adjudicate cases involving the recovery of debts due to banks, financial institutions, and other like-nature organisations.

Structure and Jurisdiction

There are currently more than 30 DRTs and 5 Debt Recovery Appellate Tribunals (DRATs) in India. These tribunals function under the Department of Financial Services, Ministry of Finance.

1. Jurisdiction:

• DRTs have jurisdiction over cases where the debt amount is ₹20 lakhs or more.
• They cover matters involving banks, financial institutions, and cooperative banks, excluding cooperative societies.
• The territorial jurisdiction depends on where the borrower resides, carries on business, or where the property is located.

2. Appellate Authority:

• Any party aggrieved by a DRT’s order can appeal to the Debt Recovery Appellate Tribunal (DRAT) within 30 days.
• DRATs are generally located in major cities such as Mumbai, Delhi, Kolkata, Chennai, and Allahabad.

Procedure and Powers of DRT

The DRT follows a simplified and time-bound process compared to civil courts. The procedure is governed by principles of natural justice and is not strictly bound by the Code of Civil Procedure (CPC).

1. Filing of Application:

• Banks or financial institutions file an Original Application (OA) before the DRT.
• The application must contain relevant and required documents like loan agreements, account statements and evidence of default of payment.

2. Issuance of Summons:

Upon receiving the OA, the DRT issues a summons to the borrower or guarantor, who is then required to file a written statement.

3. Adjudication and Order:

• The tribunal conducts hearings, examines evidence, and passes an order for recovery if the debt is found to be valid.
• The order is equivalent to a decree of a civil court.

4. Recovery of Debt:

• After the order, a Recovery Certificate (RC) is issued and handed over to the Recovery Officer attached to the DRT.
• The Recovery Officer is empowered to attach property, auction assets, and take other measures to recover the dues.

5. Appeal Process:

An appeal to the DRAT requires the appellant to deposit 75% of the debt amount as a precondition, which may be waived partly or fully by the Appellate Tribunal in certain cases.

Role in Enforcing the SARFAESI Act

In addition to their duties under the RDDBFI Act, DRTs also play a crucial role under the regulation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The Act of SARFAESI allows banks and financial institutions to enforce security interests without the intervention of the court.

However, if the borrower is aggrieved by the bank’s actions under SARFAESI (such as taking possession of property), they can file an appeal before the DRT under Section 17 of the Act. Thus, DRTs act as the adjudicatory authority in disputes arising from the enforcement of secured assets.

Advantages of DRTs

1. Speedy Disposal: DRTs aim to resolve cases within 180 days, which is much faster than the traditional court system.
2. Specialized Forum: Judges (Presiding Officers) are usually experienced professionals with knowledge of finance and banking.
3. Reduced Burden on Civil Courts: By handling debt recovery matters, DRTs free up the regular judiciary for other civil and criminal cases.
4. Efficient Enforcement Mechanism: With the help of dedicated and responsible Recovery Officers, the recovery process becomes smoother and more effective…!

Challenges and Criticism

1. Case Backlogs: Due to the increasing number of NPAs cases and limited manpower, DRTs have a growing backlog of cases, due to the lack of these factors.
2. Infrastructure Deficiencies: Many tribunals lack adequate infrastructure and staff, which hampers their efficiency.
3. Delay in Appointments: Vacancies in the positions of Presiding Officers and Recovery Officers often delay case proceedings.
4. Limited Jurisdiction: DRTs can only deal with debts above ₹20 lakhs, leaving smaller cases to the overburdened civil courts.
5. Recovery Challenges: Even after obtaining recovery certificates, actual realization of money through asset sales can be slow and contentious.

Recent Developments and Reforms

The government has taken several steps to strengthen the DRT system:

• Amendments to the RDDBFI Act to streamline procedures and improve digital filing and monitoring.
• e-DRT system to enable electronic filing of cases and real-time tracking.
• Insolvency and Bankruptcy Code (IBC): While the IBC now handles large corporate insolvencies, DRTs continue to play a crucial role in personal insolvency and individual guarantor cases.

Conclusion

The Debt Recovery Tribunals play an essential role in India’s financial, economic, and judicial ecosystem, which leads to ease in debt recovery. They provide an effective and efficient mechanism for banks and financial institutions to recover dues and maintain healthy balance sheets. While DRTs have helped expedite and smooth loan recovery and minimize the load on civil courts, further reforms are needed to enhance their efficiency and responsiveness, so that the recovery can be done in a smoother manner. With the rise of complex and critical structures of financial transactions and defaults, a robust and well-functioning DRT system is essential for the stability of the Indian banking sector and overall economic growth.