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.