Debt Recovery Proceedings Of Banks
Banks were never so serious in their efforts to ensure timely recovery and
consequent reduction of Non Performing Assets (NPAs) as they are today. It is
important to remember that recovery management, be of fresh loans or old loans,
is central to Non Performing Assets Management.
One major problem which the banks in India are facing is the problem of recovery and overdue of loans. The reasons behind this may vary for different financial institutions as it depends upon the respective nature of loans. Here an attempt is made to find out the some causes of default of loans due to which financial Institutions are facing the problems of overdue of loans. The recovery officers of different banks are interviewed for finding out the causes of defaults.
These reasons may be useful for the Banks for the better recovery of loans in future. Devising a strategy helps in achieving a set goal or objective. recovery agents should therefore devise a strategy for debt recovery.
The following guidelines would help in preparing proper strategy for debt recovery:
The collection process should be compliant to the bank specific recovery norms and also regulatory guidelines.
The collection timing should be synchronized to the cash inflow pattern of the debtors: For example, recovery from salaried employees should be timed when salary is received by or credited to the debtor's account, normally at the month end. In case of SME borrowers the effort should coincide with cash flow on account of sales. In case a collection from agriculturist should be made, then it should be soon after the crops are sold. This will call for knowledge of bank products on the part of agents. It should be the endeavour of the agent that collection should be made well before the cash inflows are spent away by the debtor for meeting other expenses.
Introduction
This Legal Internship Program has helped me in learning and acquiring the vast knowledge of practical application of law which the practicing lawyer needs to possess. It has in many ways facilitated us in filling the gap between the theoretical knowledge which as a student we had acquired from that of practical knowledge which a practicing advocate requires to apply in his / her day to day court proceedings.
This internship has imbibed the quality of reasoning and interpreting various statutes that is useful for compliance for various substantive and procedural laws. Hence the SIP is an effort to bridge the gap between the theoretical knowledge of the classroom i.e. academic inputs and practicality involved in the legal profession. A lawyer should not only be equipped with theoretical knowledge but he should be aware of the practical aspects related to the profession, this SIP has provided an opportunity to observe various practical aspects of the legal profession.
The internship has further refined my research skills; it taught me the importance of being active and assertive while taking up new assignments and how important it is to talk and interact with the clients. It has also taught me etiquettes and how beneficial having good communication skills is while interacting with clients.
The SIP has indeed assisted me in handling and understanding the work culture in court. In fact file management, drafting, location of citations and proceedings in the court.
The objective of the SIP are as under:
Client interaction: To learn the art of interaction with the clients, so to extract the facts necessary for the case and try to put it into a written format i.e., plaint and written statement.
Client counselling: To advise, educate and make the client aware of the legal principles and technicalities involved in the case. To guide him properly so as to provide relevant infor
Drafting: to learn the proper methodology of legal drafting and applying it in my drafts. To learn the practical application of legal principles on legal papers.
Documentation and evidence: To work closely with the advocate and providing assistance to the lawyers by preparing legal documents, researching legal precedents, examining evidence, preparing legal arguments and assisting in court.
Bench and Bar: Picking up the best practices of bench and bar, advocate and advocate relationships, getting acquainted with the hierarchy of courts and judges and their jurisdictions at various stages of the judicial system and knowing the rights, liabilities, duties of an advocate towards court, colleagues, clients and the state.
Follow Up: After discussing with the client, record the events of the day in relevant files, or diaries attaching all the documents with it. Also, calling upon the client and explaining to him about the future course of action.
Office administration: Learning the art of arranging the files related to the case in proper order, keeping the law books, journals, periodicals, various magazines in a proper and arranged manner in good condition, keeping and arranging all the relevant documents related to a case in a chronological order, maintaining a record of thr proceedings of the case and dates in a diary or the front page of the relevant life.
The Limitations of the LIP which I have undergone are as under:
The details of the cases like client names, parties to the cases, agreements and other documents presented in the file were to be kept confidential and as such could not be included in the report.
The materials collected for the report were purely from available documents with the case files, or provided by the senior advocate and through the internet only.
The proposed methodology used for the report is The DOCTRINAL METHOD was followed for referring to citations in various legal books, journals, legal websites so as to be able to fulfill the procedure required for filing briefs and petitions.
ADVOCATE'S PROFILE
Adv. Shailendra Srivastava is a senior advocate in High Court, Lucknow. He is a prominent lawyer with strong experience in the litigation field and offers intelligent strong work both in and out of the courtroom. He is excellent at taking depositions as a plaintiff's attorney and has a track record of securing large settlements on behalf of clients. He has a 21 years of experience in personal injury work and a wealth of knowledge concerning auto accident litigation.
Practice area includes:
Interning under him was my golden chance because I learnt many things which are essential for practical knowledge. He taught me excellent research work and writing skills, good oral and written communication. And immensely helping me to study the cases thoroughly.
Debt Recovery Tribunal
Indian banks and financial institutions had since long been suffering to recover debts and enforce securities from the defaulters. As the procedure regarding such recovery was erratic and extremely cumbersome, the Narasimham Committee of 1991 recommended the setting up of Special Tribunals like DRTs (Debt Recovery Tribunals) and DRATs (Debt Recovery Appellate Tribunals), in order to streamline such processes. The Committee's recommendation led to the enactment of Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI) 1993, from which DRTs and DRATs derive their authority to adjudge on debt recovery matters. Since its inception, we have 39 DRTs and 5 DRATs functioning in the country.
Debt Recovery Tribunals were created to facilitate the speedy recovery of debt payable to banks and other financial institutions by their customers. DRTs was set up after the passing of Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI), 1993. A person or entity aggrieved by orders of the DRT can appeal against its orders to Debt Recovery Appellate Tribunal (DRAT). The DRAT will not entertain the appeal until such person deposits the 75% of the amount of debt so due determined by the DRT. In this article, we look at the Debt Recovery Tribunal Act, in detail.
Importance of DRT
The main objective and role of DRT is the recovery of funds from borrowers which is payable to banks and financial institutions. The Tribunals power is limited to settle cases regarding the restoration of the unpaid amount from NPAs as declared by the banks under the RBI guidelines. The Tribunal has all the powers vested with the District Court. The Tribunal also has a Recovery officer who guides in executing the recovery Certificates as passed by the Presiding Officers. DRT follows the legal procedure by emphasising on speedy disposal of the cases and fast implementation of the final order.
DRT's Legitimacy
In 1995, the Delhi HC struck down RDDBFI, due to its unconstitutional nature which compromised the independence of judiciary. However, the SC allowed DRTs to function, if amendments are made to the existing Act of RDDBFI. Therefore, the government made subsequent amendments to RDDBFI in 200 and 2002, to which the SC gave its nod of being constitutional. Thus, in the present scenario DRTs function in a constitutional manner.
Composition of DRTs
Under 4 of the RDDBFI Act, the Tribunal shall be comprised of only one member (Presiding Officer), who shall be appointed by the Central Government upon notification. Upon authorisation of the Central government, the Presiding Officer (PO) of one Tribunal may also discharge functions of Presiding Officers of another Tribunal. The PO shall be appointed for a term of 5 years or 62 years of age, whichever is earlier and shall be qualified as a District Judge.
Applicability of the Act
The Debt Recovery Tribunals Act applies to the following entities.
It applies to all over India except for the State of Jammu and Kashmir.
It applies where the amount of debt due is not less than Rs. 10,00,000/-.
It applies when the original application for recovery of Debts is filed only by Banks and Financial Institutions.
Establishment of Tribunal and Appellate
The Central Government can set up one or more Debts Recovery Tribunals to exercise the jurisdiction, powers and authority conferred under this Act.
The Central Government may also specify the areas where such tribunal may exercise jurisdiction for entertaining and deciding the applications filed before it.
Composition of DRT
DRT is controlled by a Presiding Officer, who is qualified to be a District Judge and is appointed by notification by the Central Government. The central Government may also authorise another presiding officer of a DRT other than discharging the function of a presiding officer of a DRT.
Extent and scope of DRTs
Pecuniary limit under DRTs and the procedure
The DRTs can be approached for recovery of debts which are more than Rs. 10 lakhs in value. For lower amounts than the above-mentioned value, the banks and financial institutions (creditors), need to approach a civil court under CPC (Civil Procedure Code). However, the Act warrants that for other amounts more than Rs. 1 lakh, the Central government can direct certain cases to be adjudged by DRTs. Furthermore, SARFAESI Act, also specifies certain amounts pertaining to different cases, which can be taken up by the DRTs.
Now, 22(1) mandates the DRTs and the DRATs to be governed by the principles of natural justice. In pursuance of such principles, they possess the powers to regulate their own procedure and not be bound by the one laid down in CPC. Moreover, in order to argue cases in DRTs, a law degree is not required.
Jurisdiction of DRTs
Under 17 of the RDDBFI Act, DRT has the authority to entertain any application from banks and financial institutions, in order to recover loans for such banks and financial institutions. DRAT being the Appellate Tribunal shall have the jurisdiction to entertain appeals against any order made by a DRT under the Act. However, the Supreme Court has judged that DRT and DRAT cannot decide upon cases like succession rights of property, issuance of receipts, etc. Its jurisdiction is strictly confined only to cases mentioned in 17 of the Act.
Now, under 18 of the Act, other courts are barred to look into matters of debt apart from the Supreme Court and High Court, who derive their authority from Article 226 and 227 of the Constitution. This provision is in line with the L Chandra Kumar's judgment which states that Tribunals are only supplementary to High Courts and not a substitute for them.
The Process of Debt Recovery
Documents Required
Every application to be furnished by a paper book containing such as
A statement is showing details of the debt due from a Respondent and the circumstances under which such debt has become due.
Any documents relied upon by the applicant and those mentioned in the application.
Details including crossed Bank Draft or Indian Postal Order representing the application fee.
Index of the documents to be produced.
Application Fee
Every application should be accompanied with fee provided in sub-rule (2). The fee can be payable either in the form of crossed demand draft drawn in respect of the Registrar or at the Registrars office is situated.
The fee can be paid through a crossed Indian Postal Order drawn in favour of the Registrar and also payable in Central Post Office of the station where a Tribunal is situated.
Procedure for filing of application
The applicant should apply with the Registrar within whose jurisdiction the applicant is functioning as a bank or financial institution in the present.
An application should be presented in the prescribed format.
The application can be presented by the applicant or by his agent or by an authorised legal practitioner.
The application to be presented to the registrar of the tribunal within whose jurisdiction his case falls or can be sent through registered post addressed to the Registrar.
Submission of application
If the application sent by post to be deemed to have been presented to the Registrar on the same day of receiving the request by the registrar.
The application should be presented in two sets. An empty file size envelops bearing full address of the respondent. The applicant should furnish full bearing address of each of the respondents.
Presentation and verification of application
The registrar or any other concerned officer authorized by him will approve every application on the date in which it is presented or deemed to have been filed under that rule and should sign the endorsement.
If on verification the application is found to be in order, it should be duly registered and give a serial number.
Issuance of original application number
The Registrar of DRT is responsible for the Overall Administration of the tribunal.
The Registrar will issue the Original Application (OA) number and summon after verifying the application. Also serves a copy of the application and paper book on each of the respondents. The respondent may file four complete sets indicating the reply to the application along with documents within one month (or extended time allowed by the tribunal) of its receipt.
Procedure Before Filing a Case in DRT
The following procedures are to be followed before filing the case in debt recovery tribunal.
Sell pledged goods after addressing particular notice to the lender.
In the case of hypothecated goods, get possession of the assets, and sell them after addressing the due in the form of notice.
In the case of LIC policies, handover such policies and designate the surrender value towards the loan account.
Set off the credit balance in any current or savings, account and TDRs in the names of the Borrowers or Guarantors, before filing a suit.
Proof of ownership or debt such as shares, debentures, NSC, Mutual Fund Securities should be realised and be adjusted against the outstanding.
Secure the documents or securities are enforceable against borrowers/guarantors while handling files to advocates for requesting Recovery Application before the tribunal.
Brief the advocate accurately by providing a detailed narrative or write-up and by examining in detail the conduct of the account, documents received up to the date, securities created and other relevant information relating to the account.
Analysis of the draft application to verify the correctness of every fact and relevant details stated in the draft application
After verifying the accuracy of the draft application, the branch has to forward the draft application to the concerned authority for approval along with the copy of the memorandum for legal action in the account and the copy of the narrative or write-up provided earlier to the advocate along with the list of documents.
After obtaining permission from the Authority, the Branch should discuss with the advocate about the changes or observations made by the appropriate authority while according approval and finalise the Application for recovery of updated dues of the Bank.
Procedure at Filing the Case in DRT
The following procedures are to be followed at the time filing the case in debt recovery tribunal.
The Recovery Application, in the prescribed format, should be submitted with the DRT within the specified time from the day of the appropriate authority mentioned for approval against the legal action.
Recovery Application should contain the description of all relevant documents and securities charged to the Bank.
While filing Recovery Application, Xerox copies of records are to be produced to the Advocates.
Original Documents should be maintained with the Branch till DRT requires the same.
Interim reliefs such as the injunction against properties, attachment before judgement, the appointment of Receiver, Recovery Certificate for admitted dues should be appealed as a rule.
Account Extracts to be provided and certified as per the provisions of Bankers Books Evidence Act and be annexed to the Recovery Application.
Penal Interest should not be compounded.
Costs for preserving the securities before filing suit and during the pendency of the lawsuit claimed.
Procedure After Filing the Case in DRT
The following procedures are to be followed after filing the case in debt recovery tribunal.
If the Recovery Application filed is satisfied in all respects, ORT will issue a serial number and summons to borrowers or guarantors called defendants.
Serving of warrant for quick disposal of the case and the Branch/Advocate should get to see that summons are served within one month.
If the summons is served on the defendants, proceedings commence with evidence by way of affidavits filed by the bank followed by cross-examination of Bank's witnesses and vice versa followed by arguments ending up in Recovery Certificates in respect of the Bank.
Evidence by way of affidavits as preceding, clarifications or reports excepted by the DRT should be filed in time, and no adjournment to be asked on this score. Reply to counter-claims made by the borrowers should be submitted without any delay.
Defendants attempt to get an adjournment on various grounds including that their compromise proposal is pending consideration before the Bank's Advocate should oppose the Bank.
The DRT has the controls to order arrest and detention in civil prison of those defendants who do not follow the specified orders of the DRT. Wherever the defendant disobeys the laws of the DRT, the Branch should notify the Bank's Advocate to appeal for arrest and detention of such defendant.
Execution of Recovery Certificate
The Presiding Officer finally grants the Recovery Certificate and sends it to Recovery Officer (R.O.) for execution. On receipt of the Recovery certificate, the recovery officer can issue the notice to Certificate Debtors, giving 15 days for payment of the amount stated in the Recovery Certificate.
If the defendant neglects to pay the amount, Recovery Officer will proceed to recover the amount by any one or more of the methods, which are listed below:
Attachment and sale of Movable or Immovable Property of the defendant.
Arrest and Detention of the defaulter.
Appointment of Receiver.
The closing of DRT Application after full recovery of bank dues, the application is closed by Recovery officer.
Appeal Against Recovery Officer
The appeal against an order of Recovery Officer to DRT can be requested within 30 days from the date of order. The Tribunals have to resolve the claim within six months. The appeal against the judgment of DRT can be made within 45 days only to DRAT(Debt Recovery Appellate Tribunal). For filling lawsuit, as per Section 21 of the tribunal the 50% of the fund to be deposited by the appellant and the Chair Person may reduce it up to 25% of the deposit amount.
SARFAESI Route
An application to the DRT can also be made under the Securitisation and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002. Under SARFAESI, the secured creditor takes possession of the securities of the debtors, when he fails to discharge all his liabilities. However, there occurs a case, wherein the securities are not able to discharge of the entire debt. Under these circumstances, the creditors have an option of filing an application to the DRT for recovery of the remaining dues. Moreover, under 17 of the SARFAESI Act, the borrowers can also appeal to the DRTs against the creditor's findings.
Change in DRTs post IBC
The Insolvency and Bankruptcy Code, 2016 (IBC) was brought about by the government in order to unify the legal framework on bankruptcy and insolvency issues. IBC consolidated various laws relating to insolvency by amending close to 11 laws, including Companies Act, 2013, RDDBFI 1993, SARFAESI, 2002. It also did away with various old laws like Presidency Towns Insolvency Act, 1909, Sick Industrial Companies Act, 1985, etc. 238 of the IBC gave an overriding effect over the other laws.
Changes/Amendments to the RDDBFI Act after IBC are specified in the 5th Schedule of IBC and are as follows:
The title has been amended to also include bankruptcy of individuals and partnership firms into its ambit, rather than being merely limited to banks and financial institutions.
Under 3 sub-section 1(A) was added which claimed that the Central Government would have the power over the number of DRTs and its benches as it may deem necessary.
8 was amended, so as to entitle DRAT here appeal matters against orders made by Adjudicating Authority under Part III of IBC.
17 was amended so that DRTs have circuit sittings in all district headquarters. Moreover, DRTs an DRATs were granted powers and jurisdiction to entertain applications as under Part III of IBC.
Distinction between the two forums
The first basic point of difference between the two tribunals is that DRT is regulated by SARFAESI Act and its Parent Act i.e. the DRT Act, on the other hand NCLT is regulated by the Companies Act and IBC.
Secondly, the very nature of the relief provided by these bodies is different. While NCLT concerns itself with liquidation and bankruptcy proceedings, DRT is more focussed on debt recovery.
Thirdly, NCLT provides remedy sought to companies in case of default in payment of debts that are both operational and financial which gives both banks and financial institutions the right to approach NCLT for the recovery of loan amount.
Since all commercial transactions entered into businesses come under the ambit of operational debts. companies choose the convenient forum i.e. NCLT for the initiation of the insolvency recovery process instead of filing a suit in civil court. On the other hand, DRTs can only help in facilitating the recovery of amounts of financial nature i.e. dispute resolution between customers and banks. It does not have jurisdiction to entertain any other cases.
Case Study
M.Palanisamy vs Sri Lakshmi Financiers on 2 September 2010
"It is seen that in this case, even if as a result of the earlier unsuccessful proceedings taken out by the 1st respondent and others, the court auction sale in favor of the petitioner should be regarded as having been confirmed, such confirmation had been clearly set at naught by the decision in Neelambal v. Mohanaram Chettiar, (1984) 2 M.L.J.264. This would, therefore, be a case where though the sale had been confirmed earlier, such confirmation had been set aside and that too at a point of time when the application under O.34, Rule 5 of the Code filed by the 1st respondent was pending. The resulting position, therefore, is that the court sale had remained unconfirmed as the earlier confirmation had been set aside and the application for setting aside the court sale under O.34, Rule 5 of the Code was already there in regard to an unconfirmed court sale, consequently, the deposit made by the first respondent was in consonance with the requirements of O.34, Rule 5 of the Code."
The Learned counsel for the Second Respondent brings to the notice of this Court the decision of the Hon'ble Supreme Court DADI JAGANNDHAM V. JAMMULU RAMULU AND OTHERS, 2001 (4) CTC 314, wherein it is held that 'Order 21, Rule 92(2) does not prescribe any period of limitation for deposit of decretal amount and it only states that if such deposit is made within 30 days sale shall be set aside and thereby taken away discretion of court to refuse to set aside sale if decretal amount had been deposited within 30 days from date of sale and this does not mean that if deposit of decretal amount is made after 30 days but before 60 days court could not entertain application to set aside sale and if such deposit is made beyond 30 days but within 60 days then Court has discretion either to accept application or reject the same and an Application to set aside sale made along with deposit of decretal amount made within 60 days can be entertained and allowed and such an order of Executing Court was upheld as legal and valid.'
As per the ingredients of Order 21, Rule 90 of C.P.C., a material irregularity and a fraud alone will confer the jurisdiction on the Executing Court to set aside the sale.
Shri Rajender Singh vs Punjab National Bank on 28 May 2009
Complainant: Shri Rajender Singh
Respondent: Punjab National Bank
This complaint had been originally filed before the SIC, Lucknow. The SIC transferred this case to the CIC as the Public Authority concerned falls in the jurisdiction of the CIC. The brief facts of the case are as under.
The Complainant had requested the Branch Manager, Naini in his application dated 28 November 2007 for a number of information regarding a loan supposedly sanctioned in the name of his father. The CPIO replied on 15 February 2008 and informed the Complainant that the information sought could not be disclosed as this was held in a fiduciary capacity and related to a third party. He also advised him to produce a proper legal heir certificate so that further action could be taken. But the Complainant had, in the meanwhile, sent his complaint to the SIC on 11 January 2008 alleging that he did not receive any reply or information from the CPIO within the stipulated period.
During the hearing, the Complainant was not present in spite of notice. The Respondent was present and showed us a copy of the reply the CPIO had sent on 15 February 2008. In his letter,the CPIO had explained how the application for information reached him only on 28 January 2008 as it was not originally addressed to him but to the Branch Manager of the local branch. The Respondent explained that the Branch Manager was not the CPIO and he had forwarded the application to the appropriate CPIO through his regional office and, in the process, the application reached the CPIO only on 28 January 2008. While we find no fault in the quality of information provided, we note that the entire process of transfer of the application for information to the CPIO concerned took nearly 2 months. It is not clear if the Branch No.CIC/PB/C/2008/0409-SM Manager of the local branch had been designated by the Public Authority as CAPIO. In case he was the CAPIO, it was his duty to ensure that the application was duly transferred to the CPIO within the time limit prescribed in the Right to Information (RTI) Act. We would like the CPIO to let us know within 10 working days from the receipt of this order if the Branch Manager of the local branch concerned was the CAPIO at the relevant time and, in case, he was the CAPIO, to obtain and forward to us his explanation on the delay in transferring the Complainant's application for information. If we do not receive his explanation in time, we will proceed to impose a penalty under Section 20 of the Right to Information (RTI) Act ex parte.
With the above direction, the complaint is disposed of.
Sardar Prem Singh vs Bank Of Baroda And Ors. on 24 February 2004
Equivalent citations: III (2004) BC 455
Author: M Katju
Bench: M Katju, R Tripathi
JUDGMENT M. Katju, J.
In this petition the name of Sri Kuldeep Saxena has been shown for the petitioner. Mr. Pradeep Kumar, learned Counsel for the respondent Bank of Baroda states that whenever the case is listed an illness slip is sent by the petitioner. Since the impugned recovery is of more than Rs. 60 lakhs (sixty lakhs) we are not inclined to adjourn this petition.
The order sheet of the case of 7.11.2000 shows that there is a detailed order of the Division Bench of this Court stating that this is the 7th writ petition filed by the petitioner challenging the recovery. In our opinion this is clear abuse of the process of the Court. In the order dated 7.11.2000 it has also been stated that prima facie the allegations of the respondents appear to be correct.,
The petitioner has prayed for one time settlement, but it is well settled that there is no right to a party to get one time settlement vide MM. Accessories v. U.P. Financial Corporation, 2002 ALR 261.
Granting one time settlement is really re-scheduling of the loan, and only the Bank can do that. This Court under Article 226 of the Constitution cannot direct for one time settlement. The Court can only interfere when there is violation of law, but no such violation has been pointed out.
Learned Counsel for the petitioner has referred to the guidelines of the Reserve Bank of India for recovery of non-performing assets mentioned in the letter of respondent No. 1 dated 24.8.2000 (Annexure-1 to the petition). In our opinion these guidelines are only for the internal guidance of the Banks and the Financial Institutions, but a party who has taken the loan cannot derive any benefit from these guidelines, and these guidelines of the Reserve Bank of India do not confer any right on a party which has taken the loan to get one time settlement. These guidelines are purely executive instructions and not statutory directions. Hence no right can be claimed by anyone on their basis.
Hence, the petition stands dismissed.
S. Reshma vs Debt Recovery Tribunal on 4 January 2017
(Order of the Court was made by S.Manikumar,J) On 13/7/2011, in D.R.C.No.161/2010, in O.A.No.119 of 2007, Debts Recovery Tribunal I, Chennai, has passed the following order:
Whereas the defendants have failed to pay the sum of Rs.6,04,67,154.42 p (Rupees Six crores four lakhs sixty seven thousand one hundred and fifty four and paise forty two only), payable by them, jointly and severally, to the applicant in terms of Debt Recovery Certificate No.161/2010 dated 14/12/2010 issued in O.A.No.119/2007 drawn up by the Hon'ble Presiding Officer, Debts Recovery Tribunal I, at Chennai, and further interest and costs payable as per law:
Whereas the Certificate holder bank has now identified the undermentioned unsecured immovable property in which the fourth certificate debtor/defaulter is having one third share, being a joint owner, which is sought to be attached/sold by the certificate holder bank in execution of the RC issued against the defaulters.
It is hereby ordered that the said defendants are hereby prohibited and restrained from transferring and charging the under mentioned properties in any way and that all persons be and are hereby prohibited and restrained from taking any benefit under such transfer or charge.
Also note that unless the money is paid forthwith the under mentioned properties will be sold by public auction and the money will be realized without any further notice or intimation.
After considering the rival submissions to the challenge viz., the order of attachment, dated 13/7/2011, as against the undivided share of Ms.I.Rasina/fourth defendant (certificate debtor) in respect of the above said property and the claim of the writ petitioner/third party, the Debts Recovery Tribunal I, Chennai, vide, order, dated 10/12/2013 in C.P.No.26 of 2011 in D.R.C.No.161 of 2010, dismissed the claim petition.
Being aggrieved by the same, writ petitioner/third party has filed an appeal before the Debts Recovery Tribunal I, Chennai, under Section 30 (1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
The High Court, then, referred to Rule 11 of the Second Schedule of Income Tax Act, 1961 and arrived at the conclusion that sub-Rule 2 of 11 had not been complied with by the Recovery Officer in as much as the objection raised therein had not been adjudicated upon. As such, the High Court finally concluded that the proceedings before the Recovery Officer, were in violation of the provisions of Rule 11 (2) of the Income Tax Act, 1961. As rightly contended by the learned counsel for the writ petitioner, provisions of the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate proceedings) Rules, 1962, in force from time to time, shall, can be made applicable only as far as possible, with necessary modifications. Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, starts with the opening sentence of a notwithstanding clause and the same has been given effect. Amending effect of a statute, cannot be ignored by a Court.
In the result, writ petition is allowed.
Asset Reconstruction Company ... vs Florita Buildcon Private Limited ... on 1 December 2016
JUDGMENT : [Per Dr. Shalini Phansalkar-Joshi, J.] 1] By this petition filed under Article 226 of the Constitution of India, the Petitioner is invoking extraordinary writ jurisdiction of this Court for issuance of writ of certiorari to quash and set-aside the order dated 23rd September 2013 passed by the Debts Recovery Appellate Tribunal, Mumbai in Appeal No.161 of 2011 and thereby to dismiss the said appeal.
The facts, in the light of which above said prayer is made, can be stated in brief as follows;
The Petitioner is a Securitization Company, incorporated under the provisions of the Companies Act, 1956 and registered OSK wp-11025-2013.odt under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as "SARFAESI Act'", for the sake of brevity).
Respondent No.1 is the purchaser of the properties mortgaged to the Petitioner. Respondent Nos.2 to 4 are the partners who had guaranteed the repayment of the dues of M/s.D.N. Exports and they are also erstwhile owners of the mortgaged properties.
The Petitioners' predecessor-in-interest i.e. Bank of India had guaranteed financial assistance to M/s.D.N. Exports, wherein Respondent Nos.2 to 4 are the partners as well as the guarantors. Respondent Nos.2 to 4 had mortgaged in favour of Bank of India the immovable property, which is a piece and parcel of land being CTS No.1309/19, Survey No.131 area 1743 sq.mtrs. situated at village Varsova, Taluka Andheri, Mumbai. As the account of M/s.D.N. Exports had become a non-performing asset, a notice OSK wp-11025-2013.odt dated 22nd October, 2003 was issued by Bank of India under Section 13(2) of SARFAESI Act to M/s. D.N. Exports. It was also published in newspaper on 22nd February, 2004. Bank of India, thereafter, assigned the debt by Deed of Assignment dated 31st March, 2008 to the Petitioner along with Security Interest in the mortgaged property.
In the meantime, Debts Recovery Tribunal, Chennai in O.A. No.2036 of 2001 had issued a Recovery Certificate in the sum of Rs.24,88,66,110.17 on 3rd April, 2009. The Petitioner made an application before DRT-II Chennai to bring its name on record in place of Bank of India, in view of the Assignment Deed dated 31 st March, 2008. The said application was allowed on 27 th July, 2010 and the Recovery Certificate has been amended accordingly.
As per the case of the Petitioner, the Authorized Officer appointed by the Petitioner had, meanwhile, taken possession of the mortgaged property on 24th June, 2009 and published the possession notice in respect thereof, in various newspapers, dated 25th June, 2009, as required under the Security Interest (Enforcement) Rules, 2004. Neither the Mortgagors, i.e. Respondent Nos.2 to 4, nor any third party challenged the possession of the Petitioner and the measures taken by the Petitioner under Section 13 of SARFAESI Act.
Auction Purchaser, therein, had made all necessary enquiries and had also called upon the Petitioner Corporation to produce the necessary documents which Corporation failed to do and hence in the light thereof, it was held that the Corporation has failed to perform its obligation in giving fair description of the property offered for sale.
As held by the learned Debts Recovery Tribunal that in the instant case there are so many other conditions of the sale, which clearly cast a duty on Respondent No.1 to satisfy itself not only about the valid title of the property but also to the fact whether sale plot was reserved under the Development Plan or Town OSK wp-11025-2013.odt Planning Scheme. It is also pertinent to note that the Petitioner has not deliberately withheld the said information from the knowledge of prospective bidders. Both, the Debts Recovery Tribunal and the Appellate Tribunal have arrived at the conclusion that it was a mutual mistake on the part of both the parties as both the parties were not aware of the plot being RG plot.
Hence having regard to the terms and conditions of the Tender Bid of which Respondent No.1 was fully aware, and which casted a burden on Respondent No.1 to verify whether the plot was reserved or otherwise, and as Respondent No.1 has not done so, in our opinion, now he cannot turn back to the auction and contend that auction be set-aside. She was not divested of the same and therefore, as the Petitioner had 'saleable interest' in the plot, the Auction of the plot cannot be set-aside merely because Respondent No.1 had failed to act with due OSK wp-11025-2013.odt diligence and subsequently discovered that it was a RG plot, its use is restricted and hence value is diminished, especially when it was the sale on "as is where is and as is what is basis" casting in so many terms and conditions, the burden and liability on Respondent No.1 to ascertain whether it was so reserved or otherwise.
Accordingly, the writ petition is allowed. The impugned judgment and order passed by Debts Recovery Appellate Tribunal dated 23rd September, 2013 is hereby quashed and set-aside. As a result, the Appeal No.161 of 2011 stands dismissed. In consequence, the order passed by Debts Recovery Tribunal dated 29th July, 2011 is upheld.
In the circumstances, and when there was a direction to refund the amount of Rs.7.01 Crores as a final order, which has been set-aside by us, then, there is no warrant for continuing this interim arrangement. We do not think that the first respondent is without any remedy. In the event, this judgment is reversed, they can seek appropriate relief in the Higher Court. The request is, therefore, refused.
The amount deposited in the Court is thus allowed to be withdrawn by the petitioner with accrued interest thereon.
Civil Application is, accordingly, disposed of in the above terms.
Conclusion
The present law involving the code still faces confusion as the presence of more than one available forum is tested by implementation of law. The disposal rate of DRTs is alarming as they are unable to reduce the pending cases. The existence of many company related legislations with respect to recovery of debt mandates and asks for interpretation. A delay in disposal of cases due to overlapping proceedings is worrisome. The interplay of rules of the Code, the SARFAESI Act and the DRT Act remains unresolved. Simultaneous proceedings before the civil court, the DRT and the NCLT for recovery of the same debt is contributing to an inefficient insolvency regime.
Outcome of my Study
The Debts Recovery Tribunals performed well and helped the Banks and Financial Institutions recover substantially large parts of their non performing assets and bad debts. Further, the DRTs caused an increase in state-level bank lending, as Banks trusted that there is a mechanism in place to recover the dues. Nevertheless, interest rates arose after the DRTs were established and all issues for credit expansion were resolved. Although, clashes are inevitable the DRT has helped the Banks and financial sectors recover huge amounts of loans, which earlier would take years to recover on account of the long civil procedures. With the enactment of the SARFAESI Act, 2002 (The Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002) it has become possible to ensure speedy recovery and instill confidence to the borrower that they would be heard fairly especially when the borrower has got a very good track-record / relation with the Bank apart from having valuable and marketable security pledged to the Bank. The only possible remedy to the Banks and Fis to avoid clashes is do a complete due diligence before advancing loans to borrowers viz. title search, residence verification etc. However, there is no dispute to the fact that be it Public Sector or Private Sector Banking DRT is the forum for speedy recovery of debts.
Suggestions
With the aim of providing financial bodies with a speedier and more proficient method of recuperation of debts, the legislature has provided for the introduction of special courts for the purpose, called as Debt Recovery Tribunals. Debt recovery Appellate tribunals have been set up to take up the appeal against the decision passed by DRT. These Tribunals have contributed to lessening the burden on civil courts.
There are 33 DRTs in India but DRATs are only 5 in number. This clearly shows that there is the need for more number of DRTs and DRATs. Also, there should be a fixed time period for disposing off the cases in order to speed up the recovery process. The functioning of DRTs should be improved by the enactment of efficient laws to ensure that banks are able to recover their existing loans.
REFERENCES
Bare Act
RDDBFI Act, 1993
SARFAESI Act, 2002
Journals
(from Manupatra)
One major problem which the banks in India are facing is the problem of recovery and overdue of loans. The reasons behind this may vary for different financial institutions as it depends upon the respective nature of loans. Here an attempt is made to find out the some causes of default of loans due to which financial Institutions are facing the problems of overdue of loans. The recovery officers of different banks are interviewed for finding out the causes of defaults.
These reasons may be useful for the Banks for the better recovery of loans in future. Devising a strategy helps in achieving a set goal or objective. recovery agents should therefore devise a strategy for debt recovery.
The following guidelines would help in preparing proper strategy for debt recovery:
The collection process should be compliant to the bank specific recovery norms and also regulatory guidelines.
The collection timing should be synchronized to the cash inflow pattern of the debtors: For example, recovery from salaried employees should be timed when salary is received by or credited to the debtor's account, normally at the month end. In case of SME borrowers the effort should coincide with cash flow on account of sales. In case a collection from agriculturist should be made, then it should be soon after the crops are sold. This will call for knowledge of bank products on the part of agents. It should be the endeavour of the agent that collection should be made well before the cash inflows are spent away by the debtor for meeting other expenses.
Introduction
This Legal Internship Program has helped me in learning and acquiring the vast knowledge of practical application of law which the practicing lawyer needs to possess. It has in many ways facilitated us in filling the gap between the theoretical knowledge which as a student we had acquired from that of practical knowledge which a practicing advocate requires to apply in his / her day to day court proceedings.
This internship has imbibed the quality of reasoning and interpreting various statutes that is useful for compliance for various substantive and procedural laws. Hence the SIP is an effort to bridge the gap between the theoretical knowledge of the classroom i.e. academic inputs and practicality involved in the legal profession. A lawyer should not only be equipped with theoretical knowledge but he should be aware of the practical aspects related to the profession, this SIP has provided an opportunity to observe various practical aspects of the legal profession.
The internship has further refined my research skills; it taught me the importance of being active and assertive while taking up new assignments and how important it is to talk and interact with the clients. It has also taught me etiquettes and how beneficial having good communication skills is while interacting with clients.
The SIP has indeed assisted me in handling and understanding the work culture in court. In fact file management, drafting, location of citations and proceedings in the court.
The objective of the SIP are as under:
Client interaction: To learn the art of interaction with the clients, so to extract the facts necessary for the case and try to put it into a written format i.e., plaint and written statement.
Client counselling: To advise, educate and make the client aware of the legal principles and technicalities involved in the case. To guide him properly so as to provide relevant infor
Drafting: to learn the proper methodology of legal drafting and applying it in my drafts. To learn the practical application of legal principles on legal papers.
Documentation and evidence: To work closely with the advocate and providing assistance to the lawyers by preparing legal documents, researching legal precedents, examining evidence, preparing legal arguments and assisting in court.
Bench and Bar: Picking up the best practices of bench and bar, advocate and advocate relationships, getting acquainted with the hierarchy of courts and judges and their jurisdictions at various stages of the judicial system and knowing the rights, liabilities, duties of an advocate towards court, colleagues, clients and the state.
Follow Up: After discussing with the client, record the events of the day in relevant files, or diaries attaching all the documents with it. Also, calling upon the client and explaining to him about the future course of action.
Office administration: Learning the art of arranging the files related to the case in proper order, keeping the law books, journals, periodicals, various magazines in a proper and arranged manner in good condition, keeping and arranging all the relevant documents related to a case in a chronological order, maintaining a record of thr proceedings of the case and dates in a diary or the front page of the relevant life.
The Limitations of the LIP which I have undergone are as under:
The details of the cases like client names, parties to the cases, agreements and other documents presented in the file were to be kept confidential and as such could not be included in the report.
The materials collected for the report were purely from available documents with the case files, or provided by the senior advocate and through the internet only.
The proposed methodology used for the report is The DOCTRINAL METHOD was followed for referring to citations in various legal books, journals, legal websites so as to be able to fulfill the procedure required for filing briefs and petitions.
ADVOCATE'S PROFILE
Adv. Shailendra Srivastava is a senior advocate in High Court, Lucknow. He is a prominent lawyer with strong experience in the litigation field and offers intelligent strong work both in and out of the courtroom. He is excellent at taking depositions as a plaintiff's attorney and has a track record of securing large settlements on behalf of clients. He has a 21 years of experience in personal injury work and a wealth of knowledge concerning auto accident litigation.
Practice area includes:
- Land property cases
- Banking and finance sectors
- Marriage and Divorce cases
- Partition cases
- Negotiable Instruments
- Contracts & Agreements
- And other civil cases.
Interning under him was my golden chance because I learnt many things which are essential for practical knowledge. He taught me excellent research work and writing skills, good oral and written communication. And immensely helping me to study the cases thoroughly.
Debt Recovery Tribunal
Indian banks and financial institutions had since long been suffering to recover debts and enforce securities from the defaulters. As the procedure regarding such recovery was erratic and extremely cumbersome, the Narasimham Committee of 1991 recommended the setting up of Special Tribunals like DRTs (Debt Recovery Tribunals) and DRATs (Debt Recovery Appellate Tribunals), in order to streamline such processes. The Committee's recommendation led to the enactment of Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI) 1993, from which DRTs and DRATs derive their authority to adjudge on debt recovery matters. Since its inception, we have 39 DRTs and 5 DRATs functioning in the country.
Debt Recovery Tribunals were created to facilitate the speedy recovery of debt payable to banks and other financial institutions by their customers. DRTs was set up after the passing of Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI), 1993. A person or entity aggrieved by orders of the DRT can appeal against its orders to Debt Recovery Appellate Tribunal (DRAT). The DRAT will not entertain the appeal until such person deposits the 75% of the amount of debt so due determined by the DRT. In this article, we look at the Debt Recovery Tribunal Act, in detail.
Importance of DRT
The main objective and role of DRT is the recovery of funds from borrowers which is payable to banks and financial institutions. The Tribunals power is limited to settle cases regarding the restoration of the unpaid amount from NPAs as declared by the banks under the RBI guidelines. The Tribunal has all the powers vested with the District Court. The Tribunal also has a Recovery officer who guides in executing the recovery Certificates as passed by the Presiding Officers. DRT follows the legal procedure by emphasising on speedy disposal of the cases and fast implementation of the final order.
DRT's Legitimacy
In 1995, the Delhi HC struck down RDDBFI, due to its unconstitutional nature which compromised the independence of judiciary. However, the SC allowed DRTs to function, if amendments are made to the existing Act of RDDBFI. Therefore, the government made subsequent amendments to RDDBFI in 200 and 2002, to which the SC gave its nod of being constitutional. Thus, in the present scenario DRTs function in a constitutional manner.
Composition of DRTs
Under 4 of the RDDBFI Act, the Tribunal shall be comprised of only one member (Presiding Officer), who shall be appointed by the Central Government upon notification. Upon authorisation of the Central government, the Presiding Officer (PO) of one Tribunal may also discharge functions of Presiding Officers of another Tribunal. The PO shall be appointed for a term of 5 years or 62 years of age, whichever is earlier and shall be qualified as a District Judge.
Applicability of the Act
The Debt Recovery Tribunals Act applies to the following entities.
It applies to all over India except for the State of Jammu and Kashmir.
It applies where the amount of debt due is not less than Rs. 10,00,000/-.
It applies when the original application for recovery of Debts is filed only by Banks and Financial Institutions.
Establishment of Tribunal and Appellate
The Central Government can set up one or more Debts Recovery Tribunals to exercise the jurisdiction, powers and authority conferred under this Act.
The Central Government may also specify the areas where such tribunal may exercise jurisdiction for entertaining and deciding the applications filed before it.
Composition of DRT
DRT is controlled by a Presiding Officer, who is qualified to be a District Judge and is appointed by notification by the Central Government. The central Government may also authorise another presiding officer of a DRT other than discharging the function of a presiding officer of a DRT.
Extent and scope of DRTs
Pecuniary limit under DRTs and the procedure
The DRTs can be approached for recovery of debts which are more than Rs. 10 lakhs in value. For lower amounts than the above-mentioned value, the banks and financial institutions (creditors), need to approach a civil court under CPC (Civil Procedure Code). However, the Act warrants that for other amounts more than Rs. 1 lakh, the Central government can direct certain cases to be adjudged by DRTs. Furthermore, SARFAESI Act, also specifies certain amounts pertaining to different cases, which can be taken up by the DRTs.
Now, 22(1) mandates the DRTs and the DRATs to be governed by the principles of natural justice. In pursuance of such principles, they possess the powers to regulate their own procedure and not be bound by the one laid down in CPC. Moreover, in order to argue cases in DRTs, a law degree is not required.
Jurisdiction of DRTs
Under 17 of the RDDBFI Act, DRT has the authority to entertain any application from banks and financial institutions, in order to recover loans for such banks and financial institutions. DRAT being the Appellate Tribunal shall have the jurisdiction to entertain appeals against any order made by a DRT under the Act. However, the Supreme Court has judged that DRT and DRAT cannot decide upon cases like succession rights of property, issuance of receipts, etc. Its jurisdiction is strictly confined only to cases mentioned in 17 of the Act.
Now, under 18 of the Act, other courts are barred to look into matters of debt apart from the Supreme Court and High Court, who derive their authority from Article 226 and 227 of the Constitution. This provision is in line with the L Chandra Kumar's judgment which states that Tribunals are only supplementary to High Courts and not a substitute for them.
The Process of Debt Recovery
Documents Required
Every application to be furnished by a paper book containing such as
A statement is showing details of the debt due from a Respondent and the circumstances under which such debt has become due.
Any documents relied upon by the applicant and those mentioned in the application.
Details including crossed Bank Draft or Indian Postal Order representing the application fee.
Index of the documents to be produced.
Application Fee
Every application should be accompanied with fee provided in sub-rule (2). The fee can be payable either in the form of crossed demand draft drawn in respect of the Registrar or at the Registrars office is situated.
The fee can be paid through a crossed Indian Postal Order drawn in favour of the Registrar and also payable in Central Post Office of the station where a Tribunal is situated.
Procedure for filing of application
The applicant should apply with the Registrar within whose jurisdiction the applicant is functioning as a bank or financial institution in the present.
An application should be presented in the prescribed format.
The application can be presented by the applicant or by his agent or by an authorised legal practitioner.
The application to be presented to the registrar of the tribunal within whose jurisdiction his case falls or can be sent through registered post addressed to the Registrar.
Submission of application
If the application sent by post to be deemed to have been presented to the Registrar on the same day of receiving the request by the registrar.
The application should be presented in two sets. An empty file size envelops bearing full address of the respondent. The applicant should furnish full bearing address of each of the respondents.
Presentation and verification of application
The registrar or any other concerned officer authorized by him will approve every application on the date in which it is presented or deemed to have been filed under that rule and should sign the endorsement.
If on verification the application is found to be in order, it should be duly registered and give a serial number.
Issuance of original application number
The Registrar of DRT is responsible for the Overall Administration of the tribunal.
The Registrar will issue the Original Application (OA) number and summon after verifying the application. Also serves a copy of the application and paper book on each of the respondents. The respondent may file four complete sets indicating the reply to the application along with documents within one month (or extended time allowed by the tribunal) of its receipt.
Procedure Before Filing a Case in DRT
The following procedures are to be followed before filing the case in debt recovery tribunal.
Sell pledged goods after addressing particular notice to the lender.
In the case of hypothecated goods, get possession of the assets, and sell them after addressing the due in the form of notice.
In the case of LIC policies, handover such policies and designate the surrender value towards the loan account.
Set off the credit balance in any current or savings, account and TDRs in the names of the Borrowers or Guarantors, before filing a suit.
Proof of ownership or debt such as shares, debentures, NSC, Mutual Fund Securities should be realised and be adjusted against the outstanding.
Secure the documents or securities are enforceable against borrowers/guarantors while handling files to advocates for requesting Recovery Application before the tribunal.
Brief the advocate accurately by providing a detailed narrative or write-up and by examining in detail the conduct of the account, documents received up to the date, securities created and other relevant information relating to the account.
Analysis of the draft application to verify the correctness of every fact and relevant details stated in the draft application
After verifying the accuracy of the draft application, the branch has to forward the draft application to the concerned authority for approval along with the copy of the memorandum for legal action in the account and the copy of the narrative or write-up provided earlier to the advocate along with the list of documents.
After obtaining permission from the Authority, the Branch should discuss with the advocate about the changes or observations made by the appropriate authority while according approval and finalise the Application for recovery of updated dues of the Bank.
Procedure at Filing the Case in DRT
The following procedures are to be followed at the time filing the case in debt recovery tribunal.
The Recovery Application, in the prescribed format, should be submitted with the DRT within the specified time from the day of the appropriate authority mentioned for approval against the legal action.
Recovery Application should contain the description of all relevant documents and securities charged to the Bank.
While filing Recovery Application, Xerox copies of records are to be produced to the Advocates.
Original Documents should be maintained with the Branch till DRT requires the same.
Interim reliefs such as the injunction against properties, attachment before judgement, the appointment of Receiver, Recovery Certificate for admitted dues should be appealed as a rule.
Account Extracts to be provided and certified as per the provisions of Bankers Books Evidence Act and be annexed to the Recovery Application.
Penal Interest should not be compounded.
Costs for preserving the securities before filing suit and during the pendency of the lawsuit claimed.
Procedure After Filing the Case in DRT
The following procedures are to be followed after filing the case in debt recovery tribunal.
If the Recovery Application filed is satisfied in all respects, ORT will issue a serial number and summons to borrowers or guarantors called defendants.
Serving of warrant for quick disposal of the case and the Branch/Advocate should get to see that summons are served within one month.
If the summons is served on the defendants, proceedings commence with evidence by way of affidavits filed by the bank followed by cross-examination of Bank's witnesses and vice versa followed by arguments ending up in Recovery Certificates in respect of the Bank.
Evidence by way of affidavits as preceding, clarifications or reports excepted by the DRT should be filed in time, and no adjournment to be asked on this score. Reply to counter-claims made by the borrowers should be submitted without any delay.
Defendants attempt to get an adjournment on various grounds including that their compromise proposal is pending consideration before the Bank's Advocate should oppose the Bank.
The DRT has the controls to order arrest and detention in civil prison of those defendants who do not follow the specified orders of the DRT. Wherever the defendant disobeys the laws of the DRT, the Branch should notify the Bank's Advocate to appeal for arrest and detention of such defendant.
Execution of Recovery Certificate
The Presiding Officer finally grants the Recovery Certificate and sends it to Recovery Officer (R.O.) for execution. On receipt of the Recovery certificate, the recovery officer can issue the notice to Certificate Debtors, giving 15 days for payment of the amount stated in the Recovery Certificate.
If the defendant neglects to pay the amount, Recovery Officer will proceed to recover the amount by any one or more of the methods, which are listed below:
Attachment and sale of Movable or Immovable Property of the defendant.
Arrest and Detention of the defaulter.
Appointment of Receiver.
The closing of DRT Application after full recovery of bank dues, the application is closed by Recovery officer.
Appeal Against Recovery Officer
The appeal against an order of Recovery Officer to DRT can be requested within 30 days from the date of order. The Tribunals have to resolve the claim within six months. The appeal against the judgment of DRT can be made within 45 days only to DRAT(Debt Recovery Appellate Tribunal). For filling lawsuit, as per Section 21 of the tribunal the 50% of the fund to be deposited by the appellant and the Chair Person may reduce it up to 25% of the deposit amount.
SARFAESI Route
An application to the DRT can also be made under the Securitisation and Reconstruction for Enforcement of Security Interest Act (SARFAESI), 2002. Under SARFAESI, the secured creditor takes possession of the securities of the debtors, when he fails to discharge all his liabilities. However, there occurs a case, wherein the securities are not able to discharge of the entire debt. Under these circumstances, the creditors have an option of filing an application to the DRT for recovery of the remaining dues. Moreover, under 17 of the SARFAESI Act, the borrowers can also appeal to the DRTs against the creditor's findings.
Change in DRTs post IBC
The Insolvency and Bankruptcy Code, 2016 (IBC) was brought about by the government in order to unify the legal framework on bankruptcy and insolvency issues. IBC consolidated various laws relating to insolvency by amending close to 11 laws, including Companies Act, 2013, RDDBFI 1993, SARFAESI, 2002. It also did away with various old laws like Presidency Towns Insolvency Act, 1909, Sick Industrial Companies Act, 1985, etc. 238 of the IBC gave an overriding effect over the other laws.
Changes/Amendments to the RDDBFI Act after IBC are specified in the 5th Schedule of IBC and are as follows:
The title has been amended to also include bankruptcy of individuals and partnership firms into its ambit, rather than being merely limited to banks and financial institutions.
Under 3 sub-section 1(A) was added which claimed that the Central Government would have the power over the number of DRTs and its benches as it may deem necessary.
8 was amended, so as to entitle DRAT here appeal matters against orders made by Adjudicating Authority under Part III of IBC.
17 was amended so that DRTs have circuit sittings in all district headquarters. Moreover, DRTs an DRATs were granted powers and jurisdiction to entertain applications as under Part III of IBC.
Distinction between the two forums
The first basic point of difference between the two tribunals is that DRT is regulated by SARFAESI Act and its Parent Act i.e. the DRT Act, on the other hand NCLT is regulated by the Companies Act and IBC.
Secondly, the very nature of the relief provided by these bodies is different. While NCLT concerns itself with liquidation and bankruptcy proceedings, DRT is more focussed on debt recovery.
Thirdly, NCLT provides remedy sought to companies in case of default in payment of debts that are both operational and financial which gives both banks and financial institutions the right to approach NCLT for the recovery of loan amount.
Since all commercial transactions entered into businesses come under the ambit of operational debts. companies choose the convenient forum i.e. NCLT for the initiation of the insolvency recovery process instead of filing a suit in civil court. On the other hand, DRTs can only help in facilitating the recovery of amounts of financial nature i.e. dispute resolution between customers and banks. It does not have jurisdiction to entertain any other cases.
Case Study
M.Palanisamy vs Sri Lakshmi Financiers on 2 September 2010
"It is seen that in this case, even if as a result of the earlier unsuccessful proceedings taken out by the 1st respondent and others, the court auction sale in favor of the petitioner should be regarded as having been confirmed, such confirmation had been clearly set at naught by the decision in Neelambal v. Mohanaram Chettiar, (1984) 2 M.L.J.264. This would, therefore, be a case where though the sale had been confirmed earlier, such confirmation had been set aside and that too at a point of time when the application under O.34, Rule 5 of the Code filed by the 1st respondent was pending. The resulting position, therefore, is that the court sale had remained unconfirmed as the earlier confirmation had been set aside and the application for setting aside the court sale under O.34, Rule 5 of the Code was already there in regard to an unconfirmed court sale, consequently, the deposit made by the first respondent was in consonance with the requirements of O.34, Rule 5 of the Code."
The Learned counsel for the Second Respondent brings to the notice of this Court the decision of the Hon'ble Supreme Court DADI JAGANNDHAM V. JAMMULU RAMULU AND OTHERS, 2001 (4) CTC 314, wherein it is held that 'Order 21, Rule 92(2) does not prescribe any period of limitation for deposit of decretal amount and it only states that if such deposit is made within 30 days sale shall be set aside and thereby taken away discretion of court to refuse to set aside sale if decretal amount had been deposited within 30 days from date of sale and this does not mean that if deposit of decretal amount is made after 30 days but before 60 days court could not entertain application to set aside sale and if such deposit is made beyond 30 days but within 60 days then Court has discretion either to accept application or reject the same and an Application to set aside sale made along with deposit of decretal amount made within 60 days can be entertained and allowed and such an order of Executing Court was upheld as legal and valid.'
As per the ingredients of Order 21, Rule 90 of C.P.C., a material irregularity and a fraud alone will confer the jurisdiction on the Executing Court to set aside the sale.
Shri Rajender Singh vs Punjab National Bank on 28 May 2009
Complainant: Shri Rajender Singh
Respondent: Punjab National Bank
This complaint had been originally filed before the SIC, Lucknow. The SIC transferred this case to the CIC as the Public Authority concerned falls in the jurisdiction of the CIC. The brief facts of the case are as under.
The Complainant had requested the Branch Manager, Naini in his application dated 28 November 2007 for a number of information regarding a loan supposedly sanctioned in the name of his father. The CPIO replied on 15 February 2008 and informed the Complainant that the information sought could not be disclosed as this was held in a fiduciary capacity and related to a third party. He also advised him to produce a proper legal heir certificate so that further action could be taken. But the Complainant had, in the meanwhile, sent his complaint to the SIC on 11 January 2008 alleging that he did not receive any reply or information from the CPIO within the stipulated period.
During the hearing, the Complainant was not present in spite of notice. The Respondent was present and showed us a copy of the reply the CPIO had sent on 15 February 2008. In his letter,the CPIO had explained how the application for information reached him only on 28 January 2008 as it was not originally addressed to him but to the Branch Manager of the local branch. The Respondent explained that the Branch Manager was not the CPIO and he had forwarded the application to the appropriate CPIO through his regional office and, in the process, the application reached the CPIO only on 28 January 2008. While we find no fault in the quality of information provided, we note that the entire process of transfer of the application for information to the CPIO concerned took nearly 2 months. It is not clear if the Branch No.CIC/PB/C/2008/0409-SM Manager of the local branch had been designated by the Public Authority as CAPIO. In case he was the CAPIO, it was his duty to ensure that the application was duly transferred to the CPIO within the time limit prescribed in the Right to Information (RTI) Act. We would like the CPIO to let us know within 10 working days from the receipt of this order if the Branch Manager of the local branch concerned was the CAPIO at the relevant time and, in case, he was the CAPIO, to obtain and forward to us his explanation on the delay in transferring the Complainant's application for information. If we do not receive his explanation in time, we will proceed to impose a penalty under Section 20 of the Right to Information (RTI) Act ex parte.
With the above direction, the complaint is disposed of.
Sardar Prem Singh vs Bank Of Baroda And Ors. on 24 February 2004
Equivalent citations: III (2004) BC 455
Author: M Katju
Bench: M Katju, R Tripathi
JUDGMENT M. Katju, J.
In this petition the name of Sri Kuldeep Saxena has been shown for the petitioner. Mr. Pradeep Kumar, learned Counsel for the respondent Bank of Baroda states that whenever the case is listed an illness slip is sent by the petitioner. Since the impugned recovery is of more than Rs. 60 lakhs (sixty lakhs) we are not inclined to adjourn this petition.
The order sheet of the case of 7.11.2000 shows that there is a detailed order of the Division Bench of this Court stating that this is the 7th writ petition filed by the petitioner challenging the recovery. In our opinion this is clear abuse of the process of the Court. In the order dated 7.11.2000 it has also been stated that prima facie the allegations of the respondents appear to be correct.,
The petitioner has prayed for one time settlement, but it is well settled that there is no right to a party to get one time settlement vide MM. Accessories v. U.P. Financial Corporation, 2002 ALR 261.
Granting one time settlement is really re-scheduling of the loan, and only the Bank can do that. This Court under Article 226 of the Constitution cannot direct for one time settlement. The Court can only interfere when there is violation of law, but no such violation has been pointed out.
Learned Counsel for the petitioner has referred to the guidelines of the Reserve Bank of India for recovery of non-performing assets mentioned in the letter of respondent No. 1 dated 24.8.2000 (Annexure-1 to the petition). In our opinion these guidelines are only for the internal guidance of the Banks and the Financial Institutions, but a party who has taken the loan cannot derive any benefit from these guidelines, and these guidelines of the Reserve Bank of India do not confer any right on a party which has taken the loan to get one time settlement. These guidelines are purely executive instructions and not statutory directions. Hence no right can be claimed by anyone on their basis.
Hence, the petition stands dismissed.
S. Reshma vs Debt Recovery Tribunal on 4 January 2017
(Order of the Court was made by S.Manikumar,J) On 13/7/2011, in D.R.C.No.161/2010, in O.A.No.119 of 2007, Debts Recovery Tribunal I, Chennai, has passed the following order:
Whereas the defendants have failed to pay the sum of Rs.6,04,67,154.42 p (Rupees Six crores four lakhs sixty seven thousand one hundred and fifty four and paise forty two only), payable by them, jointly and severally, to the applicant in terms of Debt Recovery Certificate No.161/2010 dated 14/12/2010 issued in O.A.No.119/2007 drawn up by the Hon'ble Presiding Officer, Debts Recovery Tribunal I, at Chennai, and further interest and costs payable as per law:
Whereas the Certificate holder bank has now identified the undermentioned unsecured immovable property in which the fourth certificate debtor/defaulter is having one third share, being a joint owner, which is sought to be attached/sold by the certificate holder bank in execution of the RC issued against the defaulters.
It is hereby ordered that the said defendants are hereby prohibited and restrained from transferring and charging the under mentioned properties in any way and that all persons be and are hereby prohibited and restrained from taking any benefit under such transfer or charge.
Also note that unless the money is paid forthwith the under mentioned properties will be sold by public auction and the money will be realized without any further notice or intimation.
After considering the rival submissions to the challenge viz., the order of attachment, dated 13/7/2011, as against the undivided share of Ms.I.Rasina/fourth defendant (certificate debtor) in respect of the above said property and the claim of the writ petitioner/third party, the Debts Recovery Tribunal I, Chennai, vide, order, dated 10/12/2013 in C.P.No.26 of 2011 in D.R.C.No.161 of 2010, dismissed the claim petition.
Being aggrieved by the same, writ petitioner/third party has filed an appeal before the Debts Recovery Tribunal I, Chennai, under Section 30 (1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
The High Court, then, referred to Rule 11 of the Second Schedule of Income Tax Act, 1961 and arrived at the conclusion that sub-Rule 2 of 11 had not been complied with by the Recovery Officer in as much as the objection raised therein had not been adjudicated upon. As such, the High Court finally concluded that the proceedings before the Recovery Officer, were in violation of the provisions of Rule 11 (2) of the Income Tax Act, 1961. As rightly contended by the learned counsel for the writ petitioner, provisions of the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate proceedings) Rules, 1962, in force from time to time, shall, can be made applicable only as far as possible, with necessary modifications. Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, starts with the opening sentence of a notwithstanding clause and the same has been given effect. Amending effect of a statute, cannot be ignored by a Court.
In the result, writ petition is allowed.
Asset Reconstruction Company ... vs Florita Buildcon Private Limited ... on 1 December 2016
JUDGMENT : [Per Dr. Shalini Phansalkar-Joshi, J.] 1] By this petition filed under Article 226 of the Constitution of India, the Petitioner is invoking extraordinary writ jurisdiction of this Court for issuance of writ of certiorari to quash and set-aside the order dated 23rd September 2013 passed by the Debts Recovery Appellate Tribunal, Mumbai in Appeal No.161 of 2011 and thereby to dismiss the said appeal.
The facts, in the light of which above said prayer is made, can be stated in brief as follows;
The Petitioner is a Securitization Company, incorporated under the provisions of the Companies Act, 1956 and registered OSK wp-11025-2013.odt under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as "SARFAESI Act'", for the sake of brevity).
Respondent No.1 is the purchaser of the properties mortgaged to the Petitioner. Respondent Nos.2 to 4 are the partners who had guaranteed the repayment of the dues of M/s.D.N. Exports and they are also erstwhile owners of the mortgaged properties.
The Petitioners' predecessor-in-interest i.e. Bank of India had guaranteed financial assistance to M/s.D.N. Exports, wherein Respondent Nos.2 to 4 are the partners as well as the guarantors. Respondent Nos.2 to 4 had mortgaged in favour of Bank of India the immovable property, which is a piece and parcel of land being CTS No.1309/19, Survey No.131 area 1743 sq.mtrs. situated at village Varsova, Taluka Andheri, Mumbai. As the account of M/s.D.N. Exports had become a non-performing asset, a notice OSK wp-11025-2013.odt dated 22nd October, 2003 was issued by Bank of India under Section 13(2) of SARFAESI Act to M/s. D.N. Exports. It was also published in newspaper on 22nd February, 2004. Bank of India, thereafter, assigned the debt by Deed of Assignment dated 31st March, 2008 to the Petitioner along with Security Interest in the mortgaged property.
In the meantime, Debts Recovery Tribunal, Chennai in O.A. No.2036 of 2001 had issued a Recovery Certificate in the sum of Rs.24,88,66,110.17 on 3rd April, 2009. The Petitioner made an application before DRT-II Chennai to bring its name on record in place of Bank of India, in view of the Assignment Deed dated 31 st March, 2008. The said application was allowed on 27 th July, 2010 and the Recovery Certificate has been amended accordingly.
As per the case of the Petitioner, the Authorized Officer appointed by the Petitioner had, meanwhile, taken possession of the mortgaged property on 24th June, 2009 and published the possession notice in respect thereof, in various newspapers, dated 25th June, 2009, as required under the Security Interest (Enforcement) Rules, 2004. Neither the Mortgagors, i.e. Respondent Nos.2 to 4, nor any third party challenged the possession of the Petitioner and the measures taken by the Petitioner under Section 13 of SARFAESI Act.
Auction Purchaser, therein, had made all necessary enquiries and had also called upon the Petitioner Corporation to produce the necessary documents which Corporation failed to do and hence in the light thereof, it was held that the Corporation has failed to perform its obligation in giving fair description of the property offered for sale.
As held by the learned Debts Recovery Tribunal that in the instant case there are so many other conditions of the sale, which clearly cast a duty on Respondent No.1 to satisfy itself not only about the valid title of the property but also to the fact whether sale plot was reserved under the Development Plan or Town OSK wp-11025-2013.odt Planning Scheme. It is also pertinent to note that the Petitioner has not deliberately withheld the said information from the knowledge of prospective bidders. Both, the Debts Recovery Tribunal and the Appellate Tribunal have arrived at the conclusion that it was a mutual mistake on the part of both the parties as both the parties were not aware of the plot being RG plot.
Hence having regard to the terms and conditions of the Tender Bid of which Respondent No.1 was fully aware, and which casted a burden on Respondent No.1 to verify whether the plot was reserved or otherwise, and as Respondent No.1 has not done so, in our opinion, now he cannot turn back to the auction and contend that auction be set-aside. She was not divested of the same and therefore, as the Petitioner had 'saleable interest' in the plot, the Auction of the plot cannot be set-aside merely because Respondent No.1 had failed to act with due OSK wp-11025-2013.odt diligence and subsequently discovered that it was a RG plot, its use is restricted and hence value is diminished, especially when it was the sale on "as is where is and as is what is basis" casting in so many terms and conditions, the burden and liability on Respondent No.1 to ascertain whether it was so reserved or otherwise.
Accordingly, the writ petition is allowed. The impugned judgment and order passed by Debts Recovery Appellate Tribunal dated 23rd September, 2013 is hereby quashed and set-aside. As a result, the Appeal No.161 of 2011 stands dismissed. In consequence, the order passed by Debts Recovery Tribunal dated 29th July, 2011 is upheld.
In the circumstances, and when there was a direction to refund the amount of Rs.7.01 Crores as a final order, which has been set-aside by us, then, there is no warrant for continuing this interim arrangement. We do not think that the first respondent is without any remedy. In the event, this judgment is reversed, they can seek appropriate relief in the Higher Court. The request is, therefore, refused.
The amount deposited in the Court is thus allowed to be withdrawn by the petitioner with accrued interest thereon.
Civil Application is, accordingly, disposed of in the above terms.
Conclusion
The present law involving the code still faces confusion as the presence of more than one available forum is tested by implementation of law. The disposal rate of DRTs is alarming as they are unable to reduce the pending cases. The existence of many company related legislations with respect to recovery of debt mandates and asks for interpretation. A delay in disposal of cases due to overlapping proceedings is worrisome. The interplay of rules of the Code, the SARFAESI Act and the DRT Act remains unresolved. Simultaneous proceedings before the civil court, the DRT and the NCLT for recovery of the same debt is contributing to an inefficient insolvency regime.
Outcome of my Study
The Debts Recovery Tribunals performed well and helped the Banks and Financial Institutions recover substantially large parts of their non performing assets and bad debts. Further, the DRTs caused an increase in state-level bank lending, as Banks trusted that there is a mechanism in place to recover the dues. Nevertheless, interest rates arose after the DRTs were established and all issues for credit expansion were resolved. Although, clashes are inevitable the DRT has helped the Banks and financial sectors recover huge amounts of loans, which earlier would take years to recover on account of the long civil procedures. With the enactment of the SARFAESI Act, 2002 (The Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002) it has become possible to ensure speedy recovery and instill confidence to the borrower that they would be heard fairly especially when the borrower has got a very good track-record / relation with the Bank apart from having valuable and marketable security pledged to the Bank. The only possible remedy to the Banks and Fis to avoid clashes is do a complete due diligence before advancing loans to borrowers viz. title search, residence verification etc. However, there is no dispute to the fact that be it Public Sector or Private Sector Banking DRT is the forum for speedy recovery of debts.
Suggestions
With the aim of providing financial bodies with a speedier and more proficient method of recuperation of debts, the legislature has provided for the introduction of special courts for the purpose, called as Debt Recovery Tribunals. Debt recovery Appellate tribunals have been set up to take up the appeal against the decision passed by DRT. These Tribunals have contributed to lessening the burden on civil courts.
There are 33 DRTs in India but DRATs are only 5 in number. This clearly shows that there is the need for more number of DRTs and DRATs. Also, there should be a fixed time period for disposing off the cases in order to speed up the recovery process. The functioning of DRTs should be improved by the enactment of efficient laws to ensure that banks are able to recover their existing loans.
REFERENCES
Bare Act
RDDBFI Act, 1993
SARFAESI Act, 2002
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