DEBT RECOVERY TRIBUNAL

PRESENTED BY:-DIVYA AGARWALJAMES DANIELKRITI JAINKUNAL GOYALSHWETA SINGH

ORIGIN OF THE DEBT RECOVERY TRIBUNAL(DRT) ACT

The main function of banks is to lend money

In Wharton’s Law Lexicon, the word “debt” means a sum of money due from one person to another

The relationship between a customer & a banker is that of a debtor-creditor

Banks obtain security for loans disbursed to customers

Incase of default in payment of the loan, they can sell the hypothecated property to recover their dues

However, incase of immovable property they have to approach the Court of law

Contd…

For recovery of amount of less than Rs. 1 lakh, the banks & financial institutions have to approach civil courts & file a suit

For amounts above Rs. 10 lakhs , the jurisdiction of Debt Recovery Tribunals(DRTs) is applicable

The Narsimham Committee, the Tiwari Committee & the V.S.Hegde Committee set up by the RBI recommended the setting up of Tribunals with special powers to deal with the recovery of dues of Banks & Financial Institutions

The Tiwari committee Report of 1981 stated that the tribunal should follow simple & summary procedure in accordance with the principles of natural justice

OBJECTIVES OF THE ACT To improve & expedite the process of recovery of loans given by Banks

& Financial Institutions

To fasten the process of adjudication by following a summary procedure in dealing with the applications

To protect the banks interest. Banks interest is public interest & public interest is the nation’s interest

Recovery process blocks huge funds in unproductive assets, the value of which deteriorates over time. EX:

The Supreme Court in the Union Bank of India Vs DRT , observed that the total amount recovered by the Public Sector Banks was Rs. 5,662 crore & Rs. 139 crore towards financial institutions.

Banks play an important development role

FUNCTIONING OF DEBT RECOVERY TRIBUNAL

JURISDICTION AND CAUSE OF ACTION

This point deals with the filling of application. The conditions subject to which an application can be filed are:

The Banks and Financial Institutions can file Application in a tribunal in whose limits a Defendant or each of the Defendants, where there are more than one, actually and voluntarily reside or carry on business or personally work for profit.

Application can be filed in the Tribunal of within whose limits the cause of action arises wholly or partially.

Cause of action has been defined in order II Rule 2 of CPC.

IMPLEADING PROVISION

By virtue of Subsection 3 of section 19, Any Bank or FinancialInstitution other than the Applicant’s, which is having thesubsisting claim against the same borrower can join the applicantat any stage of the proceedings before passing of the final order.

This provision avoids multiplicity of proceedings and also helps theborrower as he is not required to defend his position againstdifferent applications.

FORM OF APPLICATION

Any Applicant made into Tribunal should comply with the conditionsin section 19 of the RDBFI act, and should be duly filed as per the proforma of the application provided in Rule 4 of RDBFI Act.

All the documents supporting the claim of the Bank should beenclosed with the application.

As per the procedures, the Tribunal has a scrutiny section toscrutinize the applications based on the pro forma provided.

Any application which does not fulfill the requirements are returned.

The Format of the Application provides distinct paragraphs. They are as under:

Para 4 must contain the statement as to how the application is within the period of limitations.

Para 5 must contain the Facts of the application.

Para 6 Comprises of the main relief sought in the Application.

Para 7 states the Interim relief sought, if any.

Para 8 Comprises of the declaration by the applicant that the matter regarding which the application is filed is not pending in any other court.

Para 9 must consist of the particulars of the application fees.

SUMMONS TO DEFENDANTS AND FILING OF REPLY

Subsection 4 and 5 of Section 19 Of Recovery of Debt Due to Banks and Financial Institutions Act (RDBFI) govern this area.

Subsection 4 of Section 19 requires that Tribunal shall issue summons to the Defendant to show cause within a period of 30

days as to why the sought relief should not be granted

Sub section 5 of Section 19 also states that the defendant ispermitted to appear before the Tribunal on or before the first dateof hearing and present a written statement.

Tribunal has the power to extend or permit the filing of written statements beyond the 30 days time period.

SET-OFF AND CLAIM OF THE DEFENDANT

Subsection 6 and 7 of Section 19 of the RDBFI Act pertain to defendant’s claim to Set-Off.

Set-Off means positive allegation against the applicant by thedefendant in his defense. It is generally claimed in money suits.

It is a sum of money actually due to the Defendants from thePlaintiff and may arise from the same facts cited by the Plaintiff.

The Tribunal will decide the amount of Set-Off from the amount due to the applicant after due enquiry and frame it in the final order.

COUNTER CLAIM

Section 19(9)says that a Counter Claim is equivalent to a Cross suitand the tribunal has the power to pass the final order on the sameapplication both on Plaintiff’s claim and the Defendant’s Counterclaim.

The Counter claim invariably requires payment of Court fees,without which the Tribunal is under no obligation to pass an order.

Subsection 10 permits the applicant of the original application tofile written statement in answer to the Counter claim.

Subsection 11 permits the Applicant to file an application before theTribunal for an order stating that claim raised by the Defendantshould not be disposed of as a counter claim but it should be madein a separate decision.

DISCRETION TO PASS INTERIM ORDERS

Subsection 12 of section 19 states that Tribunal has the authority topass any Interim Orders by the way of injunction or stay orattachment against the Defendant.

WHAT IS AN INTERIM ORDER?Interim Order is a provisional order issued before the Tribunal or anyother quasi judicial or judicial or any other such forum subordinateto it that takes a final decision.

CATEGORIES OF INTERIM ORDERS

INJUCTION STAY ATTACHMENT

.

INJUNCTION: Injunction is a prohibitive order forbidding the Defendant fromdoing some acts, which are threatening or resorting to commit suchacts.

STAY: Stay order restrains the Defendant from enforcing a JudicialProceeding.

ATTACHMENT: Attachment order is passed if the Defendant fails to furnish thesecurity to the extent of the claim furnished. This provisionstrengthens the claim of the bank and ensures Recovery.

Subsections13 to 18 deal with the attachment power of the Tribunal

POWER TO PASS ATTACHMENT ORDER

The Tribunal on its own or on the applicant supported by an affidavit, at any stage of proceedings may pass an order of attachment.

Before passing such an order the Tribunal should be satisfied that the Defendant is about to dispose of the property or remove it from the jurisdiction, or is likely to cause any damage to it.

If the Defendant in reply to the show cause notice appears before the court and satisfies the Tribunal that he is not doing what is alleged in the affidavit or furnishes the security to the extent of the claim then the tribunal has to withdraw the order.

PUNITIVE POWER

Subsection 17 of Section 19 deals with Punitive Powers of the Tribunal

By virtue of these powers, whenever the orders of the Tribunal are not respected and are violated ,the tribunal can pass on its own motion or on the application made by the party , pass an order for:

detention of the defendant in Civil Prison for not more than three

months, and attachment of properties of such person.

APPOINTMENT OF RECEIVER

Subsection 18 of Section 19 gives the Tribunal the power to appoint a receiver at any stage, either before or after issuing of the Recovery Certificate.

By the appointment of a Receiver, the tribunal is empowered to sell the immovable property to manage the Defendant’s concern, to collect the rents, protect, preserve, and improve the property.

The Tribunal is also empowered to appoint a commissioner to take the inventory of the properties of the Defendant and their sale thereof.

Section 29 Of RDBFI act also vests the power of appointing Receiverwith the Recovery officer while execution of the Recovery Certificate.

APPLICATION OF SECTION 529A OF THE COMPANIES ACT 1956.

Section 19(19) states that in a case where the defaulter is a company,

the Tribunal has the right to seek preferential distribution of the sale proceeds to the secured creditors,

in accordance with the Companies Act 1956,And, pay the surplus to the defaulter company.

SERVICE OF FREE COPY AND TRANSFER OF RECOVERY CERTIFICATE

Section 19 (22) of the RDBFI Act provides the service of free copy of every order of the Tribunal to all the parties concerned.

Section19(23) states that if the Tribunal is satisfied that the property under the case is situated within the jurisdiction of two or more tribunals then it may send copies of the Certificate for execution to such other Tribunals.

EXPEDITIOUS ADJUDICATION AND RECOVERY

Recovery Procedure is casted as the Statutory duty of the Tribunal.

Tribunal has been conferred the duty of: adjudication of the claims,

issuing certificates for the Recovery of the adjudicated debts, and,

realization of the amount specified in the Recovery Certificate through the Recovery Officer.

DISPOSAL OF APPLICATION WITHIN 180 DAYSandPOWERS TO PASS ORDERS TO MEET ENDS OF JUSTICE

Subsection 24 of Section 19 of RDBFI Act states that the disposal of every application filed before the Tribunal should be done within a time period of 180 days.

Section 19,subsection 25 vests the Tribunal with the power to pass any orders, which the act does not expressly provide, so as to ensure proper justice

MODES OF RECOVERY

MODES OF RECOVERY

The recovery in the RDBFI Act is made through the application of schedules I and II of the Income Tax Act, 1961and Income Tax Rules.

Section 26 Of the RDBFI Act contemplates three modes of recoveries which are:

By attachment and sale of movable and immovable property of the Defendant.

By arrest and Detention of the Defendant.

By appointment of a receiver for the management of the movable and immovable properties of the Defendant

SALIENT FEATURES OF RECOVERY MECHANISM

Recovery Procedure starts from the issuance of the notice to the parties followed by the attachment and sale of property of the Defendant in the event of non payment of the dues.

The actions and orders of the Tribunal officer are deemed to be of the Tribunal itself.

The Recovery provision restricts the disputers and curtails unwarranted litigation.

The Recovery Officer is not competent to entertain any objections regarding amount in the Recovery Certificate.

The head of the tribunal , that means, Presiding Officer can only withdraw, cancel, or correct the Recovery Certificate.

SALIENT FEATURES OF RECOVERY MECHANISM The Presiding officer has the power to grant time for payment of the

adjudicated debts.

If any appeal is preferred against the quantum in the Recovery Certificate and also where the dues are reduced, then the final recovery certificate has to be issued with such reduced amount, and the certificate has to be withdrawn if appeal is allowed.

After issuance of Recovery Certificate the Recovery Procedure starts as per Section 25 and 28.

The properties to be attached and sold in execution of a decree could be:

Lands, houses or other buildings, goods, money, Bank notes, Cheques, Bills of Exchange, Hundis , and other securities for money, all saleable property, movable and immovable belonging to the judgment debtor.

SALIENT FEATURES OF RECOVERY MECHANISMThere are certain properties that cannot be attached in execution of

a decree. These are: Necessary wearing apparel, cooking vessels, beds, bedding of

judgment Debtor, his wife and children, personal ornaments, etc. Tools and Books of artisan if judgment debtor is an artisan/agriculturist. Mere rights to sue for damages Right of personal Service. Stipends/Gratuities and Wages of labor Salary to the extent of first 400 and 2/3 of the remainder. 1/3 of the salary in any decree for maintenance Compulsory deposits Life Insurance Money of Judgment Debtor Allowances, etc.

JURISDICTION,POWERS AND AUTHORITY OF TRIBUNALS

JURISDICTION, POWER AND AUTHORITY OF TRIBUNALS JURISDICTION OF THE TRIBUNAL

The exclusive jurisdiction of the tribunal under section 17, 18 and 25 of the RDBFI act can be divided into 1) adjudication, 2) execution

JURISDICTION REGARDING ADJUDICATION:As per the provisions of the act, the Tribunal is empowered to decide the applications of the banks and financial institutions for the recovery of the debts due to them. The jurisdiction of the tribunal with regard to adjudication is absolute and exclusive. The RDBFI act requires the tribunal alone to decide applications for recovery of debts due to banks and financial institutions , which are more than Rs.10 lack. Once the tribunal passes an order determining the debt specified in the certificate. Section 18 of the RDBFI act ousts the jurisdiction of any other court or authority and the power of adjudication is exclusively vested in the tribunal.

JURISDICTION REGARDING EXECUTION

The execution of recovery certificate by recovery officer is also hisexclusive jurisdiction. Now a procedure has been laid down in the actfor recovery of the debts as per the certificate issued by the tribunaland this procedure is contained in chapter V of the RDBFI Act and iscovered by section 25 to 30. It is not the intention of the act that whilethe basic liability of the defendant id to be decided by the Tribunal, thebanks/financial institutions should go to the civil court or the companycourt or to any other authority outside the act for the actualrealization of the amount. The certificate granted by the Tribunal hasto be executed by the recovery officer. No dual jurisdiction at differentstages is contemplated.

JURISDICTION OF CIVIL COURT

Civil court will have territorial as well as pecuniary jurisdiction.

Section 15 of the C.P.C. says that a suit is requires to be instituted in a court of the lower grade competent to try the same.

As per section 16, a suit of which immovable property is the subject matter and a suit for recovery of movable property actually under dispute should be instituted in the court within the local limits of whose jurisdiction the property is situated, subject to pecuniary or other limitations prescribed by any law.

Section 17 says a suit in respect of immovable property which is situated within the jurisdiction of different courts may be instituted in any value of the suit falls within the pecuniary jurisdiction of the particular court.

JURISDICTION OF THE CIVIL COURT

Section 18 thereto permits institution of suit in any of the courts. If there is an uncertainty, suits that may not fall within the above are governed by section 20, which is similar to the provisions under the present act.

The tribunal having been constituted for the expeditious adjudication and recovery of debts due to the banks, for all the applications filed by the banks for recovery of an a mount above Rs. 10 lakhs, the tribunal RDBFI Act must deal such suits.

JURISDICTION OF THE HIGH COURT

The high court shall have the power throughout the territory inrelation to which it exercises jurisdiction, to issue to any person orauthority including in appropriate cases, any government withinits territory, directions, orders or writs including writs in the natureof Habeas Corpus, mandamus, prohibition, quo-Qarranto andcertiorari or any of them for the enforcement of any of the rightsconferred by part III of the constitution and for any other purpose.

The power conferred on high court by this article shall not be inderogation of the power conferred on the supreme court byclause (2) of article 32 of the constitution.

JURISDICTION OF SUPREME COURT

The supreme court shall have the power to issue directions or orders or writs including writs in the nature of Habeas Corpus, mandamus, prohibition, quo-Qarranto and certiorari whichever may be appropriate, for the enforcement of any of the rights conferred by this part .

The right guaranteed by this article shall not be suspended excepts otherwise provided for by this constitution.

By virtue of the 42nd amendment act,1976 to the constitution various conditions and limitations have been imposed on “writ jurisdiction” of both the supreme court and the high courts.

CONTD..

However the 43rd amendment and the 44th amendment removed their fetters and articles 226 and 32 were restored to their original position.

The power of high court under article 226 imposed two fold limitations on the high court.

Firstly, the power is to be exercised throughout the territory in relation to which it exercises its jurisdiction and

Secondly the person or authority against which the writ is issued be amenable to its jurisdiction by reason of residence or location within its territory.

It is discretionary remedy and cannot be claimed as matter of

right.

AUTHORITY OF DEBT RECOVERY TRIBUNALThe word Authority is synonymous with power. It is a right orcommand to act. While discharging his duties, the presiding officerof a Tribunal can exercise his implied authority to meet the ends ofjustice.

THE APPELLATE TRIBUNAL

Under the provisions of the act, the central government is empowered to establish one or more Appellate Tribunals having powers to hear appeals against the orders of the tribunal.

COMPOSITION OF THE APPELLATE TRIBUNAL

The appellate tribunal will have one chairman appointed by thecentral Government by notification. The RDBFI Act has undergone major

Amendments in the year 2000.

CONTD

POWERS OF THE CHAIRPERSON OF THE APPELLATETRIBUNAL

Prior to the amendment the Appellate Tribunal was not expressly vested with the powers, authority of general superintendence and administrative control over the Tribunals within it jurisdiction. Feeling this necessity, Section 17A was newly inserted by amendment to the RDBFI Act in year 2000.

This provision brings the tribunals under the control; and authority of the appellate tribunal. It gives power to the chairman to check whether the presiding officer of the Tribunal within his jurisdiction is discharging his duties properly.

CONTD

APPEAL TO THE APPELLATE TRIBUNAL

Appeal is treated as the continuation of the applicationoriginally filed in the Tribunal. The Appellate tribunal is thesuperior authority.

Appeal can be preferred from every judgment and order of thetribunal after the contest challenging the error an Injusticecommitted by the tribunal and seeking correction, amendment,modification, reversal or setting aside the order of judgment ofthe tribunal.

PROCEDURE & POWER OF DRT

PROCEDURE & POWER OF DRT & DRAT

Sec 20 of RDBFI ACT(Recovery of Debt Due to Banks and Financial Institutions Act)

Enacted in 1993 and amended in 2000

Provide for establishment of tribunals for expeditious adjunction and recovery of debt due to banks & FIs

PRINCIPLES OF NATURAL JUSTICE

Two features –

no person shall be condemned unheard Nobody shall act as judge in his own clause

Case study:-

ICICI vs Grapco Industries & Ors AIR 1999

Allahabad Bank vs Ramakrishna Maity 1999

POWERS CONFERRED BY SECTION22(2) OF RDBFI ACT

SUMMONING DISCOVERY OF DOCUMENTS COMMISSION FOR EXAMINATION OF WITNESS COMMISSION FOR EXAMINATION OF DOCUMENTS REVIEWING THE DECISION PROVISIONS OF ORDER 9 OF CPC APPLICATION OF THE INDIAN LIMITATION ACT

Overriding Effect of the act on the other acts-the Non Obstante Clause

Significance of the Overriding Provision:- Industrial Finance Corporation Act 1948 Companies Act 1956

THANK YOU

no questions please