DRT

Presented by:Dr. P. R. Kulkarni

Debt Recovery Tribunals

Agenda

April 8, 2023Debt Recovery Tribunals2

Introduction

The Need For DRT….

The functioning of DRT

Modes of recovery

Powers and authority of DRT

DRAT

Jurisdiction of courts





IntroductionBusiness 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.


DebtDebt 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.


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 approach the court of law April 8, 2023Debt Recovery Tribu.nals12

Machinery for EnforcementBoth 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.


Need for DRT-Objectives


Improve recovery of loans given by Banks & Financial Institutions

Huge time required in an ordinary suitTribunals are made to deal with the

cases in a speedy mannerNation losing away its valuable assetsRecovery procedure blocking significant

portion of fundsNation’s InterestBanks play developmental role in the

economy

Functioning of DRT


The functioning of DRT can be divided under various areas. They are:

Jurisdiction and Cause of ActionImpeding ProvisionForm of ApplicationSummons to Defendant and Filing of ReplySet-Off and Claim of the Defendant

Functioning of DRT


Counter ClaimDiscretion to Pass Interim OrdersPower to Pass Attachment OrderPunitive PowersAppointment of Receiver

Jurisdiction and Cause of ActionBanks 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.


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.


Form of ApplicationThe 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.


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.


Counter ClaimsIf 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.


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.


Punitive Power and Appointment of receiverWhenever 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.


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.


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.

Modes Of Recovery


By attachment and sale of movable and Immovable property of the defendant.

By arrest and detention of the defendantBy 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 artisansStipends/Gratuities/allowanceWage of labor,Money payable under a policy of insurance

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. AdjudicationEmpowered 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.

Jurisdiction and Powers of the Tribunal…contd.


B. ExecutionThe 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

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). ,

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.

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).

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 DRATThe 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 jurisdictionThe 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.

Procedures And Powers Of DRT & DRAT


Section 20 of RDBFI ActPrinciples 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)

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

……Contd.


Reviewing the decision

Provisions of Order 9 of CPC- empowered to dismiss an

application

Application of the Indian Limitation Act

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

……Contd.


Significance Of The Overriding Provision

Comparison With The Companies Act, 1956- also a special act- contains non-obstante clause

Lok Adalat


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.


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


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.


PaymentThe 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.


Sanctioning AuthorityThe 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.


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


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,


ObjectiveThe 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.


StructureCDR system in the country will have a three

tier structure: CDR Standing Forum and its Core Group CDR Empowered Group CDR Cell


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.


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.


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.


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,


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.


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.


Thank you

Date post:	24-Nov-2014
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