Debt Recovery Laws in India

The Debts Recovery Tribunal has been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers. For this the Debts Recovery Tribunal (Procedure) Rules 1993 were also drafted.

Initially they performed really when in helping the Banks and Financial Institutions recover their bad debts and huge parts of their non – performing assets. Problems occurred when several large borrowers would create hindrances in DRT’s work primarily on the ground that their claims were pending before the civil courts and if the DRT would adjudicate the matter and auction off their properties, they would have to face irreparable damages.

The dues of work men against a company, the State dues, and the dues of other non secured creditors all got ensnared before the DRTs. Furthermore, there was clash of jurisdiction between the Official Liquidators appointed by the High Courts and the Recovery Officers of the Debts Recovery Tribunals. The Official Liquidator, an appointee of a superior authority, took into his possession all the properties, which actually belonged to secured creditors who before the Debts Recovery Tribunal. The High Courts also took offence on the activities of the Recovery Officers who took away the entire amounts and paid off to the banks leaving nothing for the other claimants, including the workmen. All this lead to drastic amendments to the Recovery of Debts Due to Banks and Financial Institutions Act by means of an amending notification in the year 2000.

While the Amendment in 2000 brought some rationalization in the mechanism of the Debts Recovery Tribunal, it was not sufficient to wheedle the big borrowers. This led to the enactment of one more drastic act titled as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, also called as SRFAESI Act or SRFAESIA for short.

The SRFAESI Act, gave the lenders the right to take into their possession the secured assets of their borrowers just by providing them notices, and without the need to go through the rigors of a Court procedure. At the start this brought in lot of conformity from several defaulters. However the tougher ones punched whole in the new Act too. This led Supreme court striking down certain provisions and allowing the borrowers an adjudicatory forum before their properties could be taken over by the lenders.

And the adjudicatory forum turned out to be the Debts Recovery Tribunal. The Debts Recovery Tribunal now deals with two different Acts, namely the Recovery of Debts Due to Banks and Financial Institutions Act as well as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act. While they both aim at the same thing, their procedures are different.

The Debts Recovery Tribunals have to deal with complex commercial laws within the narrow ambit of the two laws.

Right to Education Act

The Supreme Court in a recent judgement, upheld the constitutional validity of Right to Education (RTE) Act. Private schools had opposed provisions of the RTE on the ground that they infringed on their right to do business or trade.

The Act sets out minimum norms and makes running of schools less exploitative, especially with relation to capitation fees and underpaid. Section 19 of the Act clearly states that recognition to schools will be withdrawn where a school fails to adhere to the norms and standards and any one who violates this stipulation can face a fine of Rs 1 lakh. New schools must meet the norms.

In most states, government schools lack quality education which prompts people to move to privately run schools.

We need more experimentation in methods of delivering education and better governance to make teachers teach in state-run schools and regulate the conduct of private schools that often pay their staff a pittance even while collecting extortionate tuition fees from students.

Though implementation of RTE will be extremely beneficial, educational reforms are required at a larger scale than RTE legislation and a court order. The government must fix its public schools and use its fiscal resources optimally.  

CAG Draft Report on Coal Allocation

The recent draft report of the Comptroller and Auditor General estimated a Rs 10.6 lakh crore loss to the exchequer on account of allotment of coal blocks without auction, during 2004 to 2009, to 100 private and public sector companies. It disrupted the proceedings of the Lok Sabha and the Rajya Sabha. The process followed by the government on handing over coal blocks to private sector power developers had been criticised earlier, especially by those with plans to sell generated electricity at market rates instead of regulated tariffs. In response, the Cabinet had in April 2008, approved the introduction of the Mines & Minerals (Development & Regulation) Amendment Bill, 2008, that suggested the auction of blocks for captive use. Presently, blocks are allocated to players by a government screening panel.

The Bill was moved in the Rajya Sabha on August 13 2010, then Mines Minister B K Handique, admitted that the system was “vulnerable to criticism on the ground of lack of transparency and objectivity”.

Problems arose when merchant power plants which sell electricity at market-determined rates were also included in this process. The additional profits from the availability of cheap coal would accrue solely to the project developer and the consumer was unlikely to benefit. The power ministry pressed for the diversion of coal to private merchant projects.

In the power sector, it is believed that NTPC and state-sector generating units, which supply power at regulated tariffs to customers deserves access to cheap coal.  Furthermore, coal blocks have been allocated to non-serious players, many of which were behind the prescribed time-schedule.

The allocation process was unable to maximise value of the coal mines. Besides, blocks were mainly allocated to power generators that sell most of the power under long-term power purchase agreements to state government distribution companies through competitive bidding process where the lowest power tariff wins.

Hence, the existing policy can be improved by restricting coal allocation to power companies with long-term PPAs only and by auction of coal mines, which shall be a more transparent process. Also, auctions should be opened not just to actual users, but to mining companies, including foreign ones. This will make certain greater access to technology and sustainable mining practices, plus effectiveness and competitiveness of the coal mining industry. A few amendments may be required in the Coal Mines Nationalisation Act, 1973.

Coal India v. Canadian Commercial Corporation

The Calcutta High Court in the case of Coal India v. Canadian Commercial Corporation said that any annulment proceedings in respect of a foreign award can only be made in the country that was the juridical seat of the arbitration.

Facts

The parties entered into an agreement 1989 for the Respondent to set up a coal extracting facility for the Petitioner in the Rajmahal area in the state of Jharkhand. The parties agreed that the agreement was to be governed by the laws of India; that the dispute- resolution mechanism to be followed was of arbitration; and, that the arbitration was to take place under the rules of the International Chamber of Commerce (ICC) in Geneva, Switzerland.

When disputes arose the petitioner sought a reference. The parties nominated their representatives on the arbitral tribunal and the presiding arbitrator was filled in by the ICC. The arbitral tribunal held its meetings in the United Kingdom but acknowledged that the seat of the arbitration was Switzerland. An award was passed in favor of the Respondent.

The Petitioner challenged it under Section 48 of the Arbitration and Conciliation Act, 1996 (“Act”) and also invoked the provisions of Section 34 of the Act and Sections 47 of the Act and 151 of the Code of Civil Procedure, 1908 (“CPC”) to have the award set aside to be able to pursue afresh in support of its claim (“Challenge”)

Arguments by the Parties

A preliminary objection was raised by the respondent, regarding the jurisdiction of any Indian court to receive a challenge to an arbitral award passed in a reference conducted beyond the territorial limits of India. The Respondent argued that in an international commercial arbitration, if the parties agree to a seat of the reference, the law of the seat of the reference would govern a challenge in the nature of setting aside the award unless the parties have expressly agreed otherwise. It is only a competent authority in the country, which is the seat of the arbitration that may receive such a challenge to the exclusion of all other forums.

The Petitioner mentioned that courts India are competent to receive a challenge to the award notwithstanding the place of the arbitration having been outside India and despite the Respondent not having attempted to implement it.

Judgment

The Court observed that Sections 2(1)(e) and 42 of the Act  preclude any Indian court from receiving a petition under Section 34 of the Act  unless the situs of the Respondent therein or a part of the cause of action relating to the subject- matter of the arbitration or a part of the immovable property, which was the subject-matter of the arbitration is within the jurisdiction of the court.

An arbitral award rendered in another New York Convention country will always be regarded as a New York Convention award in this country but the legal fiction that is evident from the Act may permit an arbitral award rendered in another New York Convention country to be regarded as a domestic award within the meaning of that expression in Section 2(7) of the Act.

All factors in assessing the territorial jurisdiction of a court under Indian law would then have been taken into account; and the word "domestic" in Section 2(7) of the Act would have been given its full meaning since in an imaginary case of two parties domiciled abroad, entering into an agreement that has no nexus with India or an agreement that relates to an immovable property, which is not in India, a petition under Section 34 of the Act cannot be carried to any Indian court.

An award rendered in a foreign country and which may even be a "foreign award" within the meaning of Section 44 of the Act, can be a domestic award and amenable to annulment proceedings under Indian law in this country only if such award has been made, pursuant to an agreement between the parties, under the law of India. The Court dismissed rejected challenge filed by the Petitioner as not being maintainable.