Recovery of Debt by the Banks: - An analysis of the effectiveness of the remedies available

under Recovery of Debts Due to Banks and Financial Institutions, 1993

Abstract:The establishment of Debt Recovery Tribunals was done with an objective to facilitate the
process of recovery of debts by the banks in a speedy and efficient manner and for the same
purpose an Act known as Recovery of Debts Due to Banks and Financial Institutions, 1993 was
passed and DRTs were conferred various powers by the said Act. This Author in this article will
study about the efficiencies of the remedies provided Recovery of Debts Due to Banks and
Financial Institutions, 1993 and also the challenges faced by the banks in order to recover the
debt from the borrowers.

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Introduction:Passing of Recovery of Debt due to Banks and Financial Institutions, 1993:- Creating the
Savior of the Banks
In India, before 1993, Banks and financial institutions were facing considerable difficulties in
recovering loans and enforcement of securities charged with them. The procedure for recovery of
debts due to banks and financial institutions had blocked a significant portion of their funds in
unproductive assets, the value of which deteriorates with time. Earlier, the bank had to approach
the civil courts in order to recover debts which use to take a long time. Civil courts were unable
to handle the millions of cases coming up before them. The position was that a civil suit took 5
years to 15 years for adjudication of liability or for getting a judgment.1
The committee on the financial system headed by Shri Narsimhan had considered the setting up
of special tribunals with special powers of adjudication for such matters and speedy recovery as
critical to the sector of financial sector reforms. 2 Therefore, an urgent need was felt in order to
make the debt recovery mechanism for banks and financial institutions efficient. To implement
the economic policies and give effect to the recommendations of the Tiwari Committee, the
Narasimham Committee and the High Level Committee, the Central Government introduced a
draft bill in the Lok Sabha on 13.5.1993. Since the Parliament was not in session, the President
of India Promulgated The Recovery of Debts due to Banks and Financial Institutions
Ordinance, 1993 on 24.6.1993. Subsequently, the bill enacted replacing the Ordinance and
bringing into force from 24.61993 itself i.e. from the date of commencement of the Ordinance.
This special enactment aims at speedier recovery of dues of the banks and financial institutions.
At the time of setting up the tribunals, there were more than 1.5 million cases filed by public
sector banks and 304 moved by financial institutions. They involved Rs 5,622 crore then.3

1 G.S. Dubey, An Introduction to the Recovery of Debts due to Banks and Financial Institutions Act,
1993, http://www.manupatra.co.in/newsline/articles/Upload/80938A41-3558-4A9F-BB18FD5C6192CA00.pdf
2 Honble Justie Shri A.B Srivastava and Shri C.S Lal, SRIVASTAVAS SECURITIZATION & DEBT
RECOVERY LAWS, 6TH Edition, Law Publishers (India) Pvt. Ltd., Pg:-1
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The preamble of the Act reveals the purpose and scope of the legislation. 4 It indicates the aims
and objectives of the Act which are as follows:a) Establishment of tribunals and Appellate Tribunals
b) Expeditious adjudication of claims of banks and financial institutions
c) Speedy recovery of debts from the borrowers.
The passing of the said Act was a landmark step to provide relief to the banks as the civil courts
lacked specialization to deal with the debt recovery matter. Besides, they were required to follow
civil laws in the trial which further delayed the disposal of the cases resulting in blocking of
money and slowing down of growth of economy. Therefore, the establishment of Debt Recovery
Tribunals was done.
DRTs are different from civil courts in a few ways. First, unlike civil courts, DRTs are
specialized courts for debt recovery. Second, they follow a streamlined "summary procedure"
laid out in the DRT Rules (Government of India 1993) that demands faster processing and
greater accountability by the litigants. Defendants are given less time to respond to summonses,
defense must be provided in writing, and counter-claims against the bank must be made at the
first hearing.
In the case of Kundan Rice and General Mills and another vs. Union of Indian and others 5, the
Division Bench of Punjab and Haryana High Court observed that the amount due to the banks
and financial institutions is public money, where the interest of the public is involved. The statute
aims at recovering such money in which the public has interest. Hence, where there is conflict
between the interest of a private individual and public at large, a differential treatment is
acceptable and the summary procedure of adjudication instead of elaborate trial as contemplated
in Civil Procedure Code before the tribunal is permissible and held that Act is not ultra vires or
unconstitutional.
3M J Antony, The long road to debt recovery, http://www.business-standard.com/article/opinion/m-jantony-the-long-road-to-debt-recovery-113022600599_1.html
4 K.Panduranga Rao, Law related to Debt Recovery Tribunals, Asia Law House, 4 th Edition, Pg:- 3
5 II (1997) BC 79
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FEATURES OF THE ACT:1. Establishment of a Special Tribunal

The Recovery of Debts due to Banks and Financial Institutions, 1993 constituted a special
tribunal for dealing with the cases of debt recovery. The constitution of a special body was
necessary as the civil courts were lacking expertise to deal with these kinds of matters. Under the
Act, Section 3 gives power to the Central Government to establish Debt Recovery Tribunals. The
Central Government has the power to appoint the presiding officer of the Tribunal by a
notification. Section 18 was specifically inserted in the Act. The section puts a bar to the courts
inferior to Supreme Court and the High Courts to exercise jurisdiction, power or authority on
cases where the application has been made by the banks and the financial institutions for
recovery of debts due to banks and financial institutions. As per Section 34 of the Act, the act
will have an overriding effect on any other law.
Like Civil Courts, Tribunals also have pecuniary and territorial jurisdiction. Under Section 1(4),
Tribunals will have pecuniary Jurisdiction where the debt due to any bank or financial institution
or to a consortium of banks and financial institutions is Rs 10 lakhs and above or such other
amounts, being rupees one lakh and above, as the Central Government may, by notification,
specify.6 If the amount is less than the amount stated above, Civil Courts alone will have
jurisdiction and Tribunal cannot entertain claim application.7
Thus, the legislature created a special body to deal with the cases of debt recovery. It was a
significant step taken by the legislature to promote the growth of banks. The courts inferior to
Supreme Courts and High Courts were barred to try the application of banks and financial
institutions in relation to recovery of debts.
2. Tribunals not bound by Procedural Laws:As the aim to setup special tribunal to deal expeditiously with the cases of recovery of debts due
to banks and financial Institutions, it was set free to follow procedural laws existing in India. It
is indeed an appraising fact that the legislature did not make mandatory for the Tribunals to
6 K.Panduranga Rao, Law related to Debt Recovery Tribunals, Asia Law House, 4 th Edition, Pg:- 3
7 K.Panduranga Rao, Law related to Debt Recovery Tribunals, Asia Law House, 4 th Edition, Pg:- 3
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follows Civil Procedure Code. This has given a relief to the Tribunals from following a long
trial process which takes years to come to a final Judgment. However, the Tribunal is required
to follow the principles of Natural Justice. The Tribunals has also been given the powers of
Civil Courts as embedded in Civil Procedure Code, 1908. The powers of the Civil Court which
the tribunal posses are as follows8:(a) Summoning and enforcing the attendance of any person and examining him on oath;
(b) Requiring the discovery and production of documents;
(c) Receiving evidence on affidavits;
(d) Issuing corn-missions for the examination of witnesses or documents;
(e) Reviewing its decisions;
(f) Dismissing an application for default or deciding it ex parte;
(g) Setting aside any order of dismissal of any application for default or any order passed by it
ex parte;
(h) Any other matter which may be prescribed.
3. Tribunals have exclusive jurisdiction for adjudication:The Debt recovery tribunals were given exclusive powers to deal with the cases of debt due to
banks and financial institutions involving sum of money more than 10 lakhs. Section 18 of the
RDB Act, 1993 specifically puts a bar on the courts subordinate to Supreme Court and High
Court to exercise jurisdiction, power or authority on cases where the application has been made
by the banks and the financial institutions for recovery of debts due to banks and financial
institutions. Thus, exclusive jurisdiction has been given to the Tribunals if the debt amount is 10
lakhs or above.
The Supreme Court of India in Allahabad Bank v. Canara Bank and others 9, held that the Act
overrides the provisions of Companies Act. At the Stage of adjudication under Section 17 and
execution of the certificate under Section 25 etc, the provisions of the RDDB Act, 1993 confer
exclusive jurisdiction in the Tribunal and the Recovery officer in respect of debts payable to the
Banks and Financial Institutions and there can be no interferences by the Company courts under
Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956. In respect
of the monies realized under the RDB Act, the question of priorities among the Banks and
Financial Institutions and other creditors can be decided only by the Tribunal under the RDB Act,
8 Section 22(2) of the Recovery of Debts due to Banks and Financial Institutions, 1993,
http://indiacode.nic.in/fullact1.asp?tfnm=199351
9 2000 (3) Supreme 205
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1993 and in accordance with Section 19(19) read with Section 529-A of the Companies Act and
in other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with
the provisions of the Companies Act, 1956 and the latter ct has to yield to the provisions of the
former. The position holds good during the pendency of the winding up petition against the
debtor company and also after a winding up order is passed. No leave of the Company Court is
necessary for initiating or continuing the proceedings under RDB Act, 1993.
4. Power of Attachment:The tribunal can on its own or on filing an affidavit by the petitioner or at any stage of the
proceedings, may pass an order of attachment. Before an order of attachment, is passed, the
tribunal should be satisfied that the defendant is about to dispose of his property or about to
remove it from its jurisdiction or likely to cause any damage or mischief to the property,
diminishing its value or creating third party interest. If these acts of commissions and omission
of defendant have been done with an intent to obstruct or delay or frustrate the execution of any
order of recovery of debt that may be passed against him, the tribunal may give direction to the
defendant to furnish suitable security or to produce and place the property at the disposal of it
which is sufficient to satisfy the debt or to show cause why he should not furnish security by
appearing in person. If the defendant shows cause to the satisfaction of the court or furnishes
security, the tribunal should to furnish the security required; the tribunal may order attachment of
the whole or a portion of the property of the defendant claimed by the applicant which is
sufficient to satisfy the certificate of recovery.10
5. Recovery of Debts by Recovery officer:As per Section 19(7), the presiding officer issues a certificate to the recovery officer on the basis
of the order of the Tribunal for the recovery of the amount of debt as mentioned in the certificate.
Section 25 further mentions the way in which the Recovery officer can recover the amount of
debt mentioned in the certificate and those methods are as follows:1. Attachment and sale of the movable or immovable property of the defendant.11
2. Arrest of the defendant and his detention in prison.12

10 K.Panduranga Rao, Law related to Debt Recovery Tribunals, Asia Law House, 4 th Edition, Pg:- 3
11 Section 25(1) of the Recovery of Debts due to Banks and Financial Institutions, 1993,
12Section 25(2) of the Recovery of Debts due to Banks and Financial Institutions, 1993
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3. Appointing a receiver for the management of the movable or immovable properties of the
defendant.13
WHY THE SAVIOUR OF THE BANKS HAS TURNED INEFFECTIVE??
1. Shortage of Debt Recovery Tribunals and Presiding officers:With India achieving the status of fastest growing economy in the world, the banking sector is
also on the rise. However, it is to be noted that there are only 33 DRTs and 5 DRATs in India.
The data shows that about 43,000 cases involving a whopping Rs 1.43 lakh crore were pending
with 33 debt recovery tribunals (DRTs) across the country at the end of FY13. 14 It is submitted
that DRTs were setup in order to facilitate banks so that they can get their blocked capital from
the defaulting borrowers but due to shortage of DRT, the problem has remained the same. It is
submitted that immediate steps should be taken to curb this problem. The Government should
setup more DRTs in order to facilitate banks to recover their money from the defaulting
borrowers.
Now, it is pertinent to mention here that section 4(2) of RDB Act, 1993 grants power to the
Central Government to direct the Presiding Officer of one Tribunal to discharge also the
functions of the Presiding Officer of other tribunal as well. 15 Although the concept of DRT was
brought in order to bring an expeditious trial mechanism, the lack of adequate staff and timely
replacements has hit their operations.16 In 2009, the DRT of Coimbatore had come to a halt as
the presiding officer had gone to a long vacation and then the Presiding officer of Madurai was
ordered to take additional charge of Coimbatore.17 It has become a frequent practice that the
presiding officer of one tribunal are ordered by the government to discharge the functions of the
13 Section 25(3) of the Recovery of Debts due to Banks and Financial Institutions, 1993
14 As banks cry over NPAs, debt recovery tribunals sit on cases worth Rs 1.43 L cr,
http://archive.financialexpress.com/news/as-banks-cry-over-npas-debt-recovery-tribunals-sit-on-casesworth-rs-1.43-l-cr/1154002
15 Section 4(2) of the Recovery of Debts due to Banks and Financial Institutions, 1993
16 Anita Bhoir & Maulik Vyas, Staff crunch forces debt recovery tribunals to put off cases,
http://articles.economictimes.indiatimes.com/2012-12-10/news/35726438_1_drts-debt-recovery-badloans
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presiding officer of the other tribunal. This happens because there is a lack of judges in some
tribunals. This results in inefficiency in the work of the Presiding officer and results in delay in
the disposal of the cases. Therefore, it is submitted that sufficient presiding officers should be
appointed be appointed and one presiding officer shall not be given additional charge of other
DRT as it brings delays in the trial of the cases and thereby defeating the very sole purpose of
the Act.
2. Shortage of Infrastructure and Staff:It is surprising to note that the Debt Recovery tribunals till date also lacks infrastructure. One
will raise its eyebrows by knowing that the Debt Recovery Tribunal of Allahabad operates from
the bedroom of a rented house, in jaipur the DRT is situated at a location meant for a shop etc. 18
Most of the Debt Recovery Tribunals are themselves facing eviction suits. The Debt recovery
tribunals do not get proper funds from the centre and therefore unable to hire permanent
employees. The problem has got worst as the DRTs are compelled to hire contractual staff. 19
There is an acute shortage of staff working in DRTs. Further, It is highly surprising to note that
the presiding officers are paying the telephone bills, court notice fee, stamp fee etc. out of their
pockets so that the tribunals can function in a hope that the money will be refunded to them.
The current status of government-owned banks is that they all are burdened by bad loans. It is
submitted that the savior for banks is Debt Recovery Tribunal and thus proper infrastructure
should be built up and salaries of employees should not be included in the expenditure fund of
tribunals. The banks have lost their faith on DRTs and it is a serious concern. The government
should properly address the issues in this regard.
3. Disposal within 6 months: - A mandate or an illusion?
It is to be noted that the Act was brought with an aim to dispose of the cases pertaining to debts
due to banks and financial institutions in an expeditious manner. There was a huge amount of
banks money blocked in litigation. Therefore, the time frame for the disposal of the cases under
17 DRT functioning pace draws flak, http://www.thehindu.com/todays-paper/tp-national/tptamilnadu/drt-functioning-pace-draws-flak/article333280.ece
18 Debt Recovery Tribunals in dire straits, http://articles.economictimes.indiatimes.com/2014-0609/news/50448255_1_drts-stamps-government-owned-banks
19 Debt Recovery Tribunals in dire straits, http://articles.economictimes.indiatimes.com/2014-0609/news/50448255_1_drts-stamps-government-owned-banks
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the RDB Act, 1993 was set as 6 months from the date of receipt of application by the banks or
the financial institutions by the Tribunal. However, at the perusal of Section 19(8) of the said
Act, it is found that the tribunal shall make endeavour to dispose the case within 6 months from
the date of the receipt of the application. Thus, there is no compulsion on the Tribunals to dispose
the matter within 6 months from the date of receipt. Further, it is to be noticed that there is no
provisions which talks about reasons to be recorded if the case is prolonged for more than 6
months. Thus, the Presiding officer is not accountable if the case prolongs for more than 6
months. It is submitted that the legislature shall make amendments in this regard and fix a clear
time frame for the disposal of the cases under the Act. Though, the Act was enacted with a view
to try the cases pertaining to debts due to banks and financial institutions, it cannot be fulfilled
until and unless a clear time frame for the disposal of the cases is not brought. Further, the
provisions for reasons to be recorded in writing should also be inserted in cases which cannot be
disposed off within 6 months to ensure more accountability and transparency.
4. Limit of Rs 10 Lakhs- Is it a fair Limit??
It is pertinent to mention here Section 1(4) of the RDB Act, 1993 says that the banks or financial
institutions which has a debt of 10 Lakhs or above are covered under the Act and can file an
application for the recovery of the debt amount. Thus, if a bank or a financial institution has to
file an application for the recovery of debt amount which is less than 10 Lakhs, they can only
approach civil court. It cannot be denied that the there can be a huge number of defaulters where
the loan amount or the debt amount is less than 10 Lakhs. The banks will suffer a huge cash
crisis if those loans turn into bad. Therefore, it is submitted that the limit should be reduced
considering the factor that a large number of borrowers can take loans from the banks of amount
less than 10 Lakhs which can turn into bad loans. In this situation also, a huge amount of capital
of banks or financial institutions gets blocked in litigation which has to run in civil courts. It
would take a long time to dispose off the matter. Thus, the limit of 10 lakhs should be reduced so
that if a banks or financial institution has a debt of less than 10 lakhs can reach DRT instead of
civil court for the expeditious trial of the matter.

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CONCLUSION:The Recovery of Debt due to Banks and Financial Institutions Act, 1993 was passed with an aim
to speed up the process of recovery of bad loans from the defaulting borrowers. Earlier, Banks
and financial Institutions only had the option of filing suit in a civil court. The Civil Court as
bound by procedural laws and lacking expertise used to take long time to adjudicate the matter.
This was creating a block of capital of the banks and affecting the economy. Therefore, under the
Act, Special Tribunals known as Debt Recovery Tribunals were constituted to deal with the cases
of debts due to banks and financial institution from the defaulting borrowers. The main aim of
the Act was for the expeditious trial of the cases in which the debt is due to banks or the financial
institutions from the defaulting borrowers. The legislature had incorporated some provisions also
to make the trial of the cases expeditious. For instance, DRTs are not bound by the Civil
Procedure Code, a time line has been prescribed for the disposal of the cases, exclusive
jurisdiction has been given to the tribunals to adjudicate the matter and Recovery officers are to
be appointed under the Act and had been given various powers to facilitate the process of
Recovery etc.
Despite of various feature provided under the Act and various powers given under the Act, the
backlog of cases in DRT is continuously increasing. Its time to introspect the problems which
are there in the law and to correct them. Various Reports have come predicting India as the
fastest growing economy by the end of 2016. Banking sector plays an important role in the
development of an economy. The only savior of the Banks i.e. DRTs are not functioning well. It
takes about 3-4 years for a DRT to dispose off the matter whereas the time limit prescribed under
the Act is 6 months from the date of the application. The Banks have lost their faith in DRTs but
they do not have other options.
It is submitted that a clear mandatory time frame should be fixed for the Tribunals to dispose off
the matter of debts due to banks and financial institutions. Further, the number of DRTs shall be
increased as the operation of banks is increasing. More and More individuals are using facilities
of banks nowadays. The government has also tried to connect everyone with banks. In these
kinds of circumstances, the number of DRTS has to be increased.

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The number of Presiding officers is also insufficient. There are several instances where the
Presiding officer of one tribunal has also been ordered to take additional charge of presiding
officer of other tribunals. This results in inefficiency in work. A lot of time is consumed in
commuting on a daily basis. Thus, sufficient number of presiding officers shall be appointed in
every DRT. Besides, the staff of the tribunal is also lacking. The condition is worse as the
tribunals are compelled to hire staff on contractual basis as they are unable to pay them salary.
This results in inexperienced people assisting the Tribunal which further delays the disposal of
the cases.
Lastly, the limit of 10 Lakhs of the debt for banks and financial institutions to seek remedy under
this Act is too much. The banks do have to face a large number of bad loans where the debt is
less than Rs 10 Lakhs but in such cases too, the total amount will be Crores. Thus, the limit of Rs
10 Lakhs shall be reduced
The Act has not been able to achieve with the very object for which it was enacted i.e
Expeditious adjudication of claims of banks and financial institutions and speedy recovery of
debts from the borrowers. The sole purpose of the Act is in danger and thus the legislature needs
to carry out reforms as soon as possible as the only savior of the Banks has become inefficient.

REFERENCES:1. http://www.manupatra.co.in/newsline/articles/Upload/80938A41-3558-4A9F-BB18FD5C6192CA00.pdf
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2. Honble Justie Shri A.B Srivastava and Shri C.S Lal, SRIVASTAVAS SECURITIZATION
& DEBT RECOVERY LAWS, 6TH Edition, Law Publishers (India) Pvt. Ltd., Pg:-1
3. http://www.business-standard.com/article/opinion/m-j-antony-the-long-road-to-debtrecovery-113022600599_1.html
4. K.Panduranga Rao, Law related to Debt Recovery Tribunals, Asia Law House, 4 th
Edition, Pg:- 3
5. http://indiacode.nic.in/fullact1.asp?tfnm=199351
6. http://archive.financialexpress.com/news/as-banks-cry-over-npas-debt-recoverytribunals-sit-on-cases-worth-rs-1.43-l-cr/1154002
7. http://articles.economictimes.indiatimes.com/2012-12-10/news/35726438_1_drts-debtrecovery-bad-loans
8. http://www.thehindu.com/todays-paper/tp-national/tp-tamilnadu/drt-functioning-pacedraws-flak/article333280.ece
9. http://articles.economictimes.indiatimes.com/2014-06-09/news/50448255_1_drts-stampsgovernment-owned-banks

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