DEBT RECOVERY TRIBUNAL IN INDIA: CHALLENGES AND WAY FORWARDS

INTRODUCTION

In the contemporary economic landscape, the efficient and timely resolution of financial disputes is of paramount importance to maintain the stability and growth of any country’s financial sector. In India, the debt recovery mechanism has been subject to constant scrutiny and reforms, with the establishment of Debt Recovery Tribunals(DRTs) playing a pivotal role in addressing the burgeoning issue of non –performing assets(NPAs) and expediting the recovery of debt. Recovery of loans made by banks and other financial institutions to specific individuals or businesses had been an issue. As a result, banks and other financial organizations began to refrain from making loans. An efficient way to retrieve the money from borrowers was required. This led to the formation of Debt Recovery Tribunals after the passing of the Recovery of Debts due to the Banks and Financial Institutions Act (RDDBFI) 1993.¹ The chief aim and role of DRT is to recover money from borrowers which is due to financial institutions led by the principles of Natural Justice and other provisions of the act.²

HISTORICAL BACKGROUND OF DEBT RECOVERY TRIBUNAL

Banks and other financial institutions had to file a lawsuit in civil court to recover money from borrowers. The case was tried and determined according to the lengthy and intricate civil procedure code (CPC), 1908³. A committee was established in 1981 to recommend reform, and Mr. T. Tiwari served as its chairman. The committee noted that cases involving the collection of debt owed to banks and financial organizations were not given priority since the court was overburdened with cases.⁴ The group recommended a variety of actions, one of which was the creation of quasi-judicial organizations that would only handle recovery-related issues.⁵ However, the creation of such organizations was not started for a decade later Indian Financial market and economic liberalization.⁶

Later in the year 1991, the Narasimham committee supported the recommendation of the Tiwari committee and suggested setting up special tribunals.⁷ The recommendations of the Narasimham committee lead to the enactment of the recovery of Debts due to banks and financial institutions Act (RDDBFI), 1993.⁸

The Debt Recovery Tribunal (DRT) was established in India in 1993 under the recovery of Debt due to Banks and Financial Institutions Act (RDDBFT).⁹ The establishment of DRTs was in response to the high levels of non-performing assets (NPAs) in the banking system, which was causing financial instability and hampering economic growth. Before establishing DRTs, Banks and financial institutions had to rely in the traditional legal system to recover their debts, which was a time-consuming and cumbersome process. The traditional legal system was also perceived to be biased in favour of borrowers, as it provided them with several opportunities to delay or avoid repayments.

The establishment of DRTs was aimed at providing a faster and more efficient mechanism for banks and financial institutions to recover their debts. DRTs were given exclusive jurisdiction over the recovery of a debt due to banks and financial institutions and were empowered to hear and decide cases involving such debts.¹⁰ The RDDBFI Act also provided for the establishment of an appellate tribunal known as the Debt Recovery Appellate Tribunal (DRAT), to hear appeals against the orders passed by the DRTs.¹¹ The DRATs were also given exclusive jurisdiction over such appeals. ¹²There have been key cases that have shaped the functioning and jurisdiction of DRTs. Some of these cases are: 

1. Mardia Chemicals Ltd. Vs. Union of India¹³: In the case, the supreme court of India upheld the constitutional validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.¹⁴ This act empowers banks and financial institutions to recover their non-performing assets (NPAs) without the intervention of courts. However, the court also recognized the right of borrowers to approach DRTs to challenge the measures taken by banks under the SARFAESI Act. ¹⁵

2. ICICI Bank Ltd. Vs. Official Liquidator of APS Star Industries Ltd¹⁶: In this case, the Supreme court held that DRTs have the jurisdiction to adjudicate claims even against a company in liquidation under the companies Act. This case clarified the concurrent jurisdiction pf DRTs and company courts in matter relating to the recovery of debt form a company in liquidation.

3. Keshavlal khemchand and sons Pvt. Ltd. Vs. Union of India¹⁷ : In this case, the Gujarat High court held that the DRT could not adjudicate dispute that do not involve banks or financial institutions as parties. This case clarified the scope of the DRTs jurisdiction and prevented the tribunal from being overburdened with cases not directly related to the recovery of debt.

 Over the years, the DRTs have played an important role in t the recovery of debts due to banks and financial institutions in India. However, there have been concerns about the effectiveness of the DRTs in some cases, to address these concerns, the government of India has made several amendments to the relevant laws and introduced laws like Insolvency and Bankruptcy Code¹⁸, and has also  adopted various measures to improve the functioning of DRTs.  

CHALLENGES:

Debt Recovery Tribunals (DRT) in India face several challenges, some of which include:

1. Backlog of cases: One of the biggest challenges faced by DRTs in India is the backlog of cases. Due to the large number of cases pending before the DRTs, the disposal rate of cases is slow, leading to delays in the recovery of debts.
2. Inadequate infrastructure: DRTs in India face a shortage of infrastructure, including courtrooms and staff. This can lead to delays in the disposal of cases.
3. Limited jurisdiction: DRTs in India have limited jurisdiction, which means that they can only hear cases related to the recovery of debts under certain laws. This can result in cases being filed in multiple forums, leading to further delays and confusion.
4. Lack of specialized expertise: Debt recovery is a specialized area of law, and there is often a lack of specialized expertise among the judges and staff of DRTs in India. This can result in delays, errors, and a lack of confidence among litigants in the DRT system.  
5. Inefficient recovery mechanisms: The recovery mechanisms available to DRTs in India, such as assets and garnishment of wages, can be inefficient and time-consuming which can further result in a delay in the recovery of debts. 
6. Borrowers’ intention not to repay debt-many borrowers take loans without proper planning and use funds for non-productive purposes such as personal expenses, luxury purchases, or speculative investments. When they fail to repay the loans, they restore to various tactics to avoid repayment, such as hiding assets, transferring funds to other accounts, or filing frivolous litigations. This not only causes financial losses to the banks but also delays the recovery process and adds to the backlog of cases in DRTs.

This challenge puts a significant burden on DRTs, as they have to examine borrowers’ intentions and attempt to recover the debt through legal means. DRTs have to follow a lengthy and time-consuming legal process to recover the debts which involve issuing of notice conducting hearings, and passing orders. In some cases, the legal process can take several years, which further adds to the burden of DRTs.

WAY FORWARDS:

To address the challenges faced by DTRS, DRTS needs to adopt a multi-prolonged approach

1.  Awareness- There is a need to create awareness among borrowers about the importance of financial discipline, credit culture, and the consequences of defaulting on loans. This can be done by organizing seminars, boot camps, advertisements, and financial literacy programs through various means like social media platforms, Newspaper articles, Online articles, and so on.

2.  Proactive approach- DRTs need to adopt a proactive approach to identify cases of intentional default and take appropriate measures to prevent such instances. This can include stricter regulations and guidelines for borrowers, monitoring of loan disbursement, and timely identification of potential defaulters. Additionally, DRTs can also explore alternative dispute resolution mechanisms to expedite the debt recovery process and reduce the burden on the judicial system.

3. Increase funding: Adequate funding is necessary to improve the infrastructure and staff strength of DRTs. The government should increase the funds provided to DRTs to ensure they have adequate financial resources for improving the infrastructure and for proper functioning.

4. Increase the number of DRTs: The number of DRTs in India is currently limited, and overburdened with cases. Increasing the number of DRTs can help to reduce the backlog of cases leading to a speedy recovery mechanism.

5. Use technology: Technology can be used to improve the efficiency of the debt recovery process. The government can take the initiative for digitalization of the DRTs’ recovery mechanism, technology solutions like e-hearing, e-courts, and e-filling can help to streamline the process and improve the efficiency of DRTs. 

 CONCLUSION

 In conclusion, the debt recovery Tribunal (DRT) in India plays a crucial role in the recovery of debts by financial institutions and banks. However, there are several challenges that hinder its effectiveness. To address these challenges, there is a need for the government to increase the number of DRTs and provide them with adequate infrastructure, manpower, and funding. There is also a need for greater awareness among borrowers about the DRT process, its benefits, and the consequences of defaulting on loans. Overall, the DRT has the potential to be an effective mechanism for debt recovery in India, but it requires significant improvement in its functioning and infrastructure. By addressing these challenges, the DRT can help banks and financial institutions recover their dues in a timely manner, which would ultimately boost the country’s economy.

1. Recovery of Debts due to the Banks and Financial Institutions Act, Acts of Parliament,1993(India) ↩︎
2. Recovery of Debts due to the Banks and Financial Institutions Act , S 22, Acts of Parliament,1993(India) ↩︎
3. Code of Civil Procedure, Acts of Parliament,1908,(India) ↩︎
4. Unnati Arora, Functioning of Debt Recovery Tribunal in India, Ipleaders,(June 13,2023,7:31 PM)  https://blog.ipleaders.in/functioning-debt-recovery-tribunals ↩︎
5. Unnati Arora, Functioning of Debt Recovery Tribunal in India, Ipleaders,(June 13,2023,7:31 PM)  https://blog.ipleaders.in/functioning-debt-recovery-tribunals ↩︎
6. Unnati Arora, Functioning of Debt Recovery Tribunal in India, Ipleaders,(June 13,2023,7:31 PM)  https://blog.ipleaders.in/functioning-debt-recovery-tribunals
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7. Unnati Arora, Functioning of Debt Recovery Tribunal in India, Ipleaders,(June 13,2023,7:31 PM)  https://blog.ipleaders.in/functioning-debt-recovery-tribunals ↩︎
8. Recovery of Debts due to the Banks and Financial Institutions Act, Acts of Parliament,1993(India) ↩︎
9. Recovery of Debts due to the Banks and Financial Institutions Act , S 3, Acts of Parliament,1993(India) ↩︎
10.  Recovery of Debts due to the Banks and Financial Institutions Act,  S 17,Acts of Parliament,1993(India) ↩︎
11.  Recovery of Debts due to the Banks and Financial Institutions Act, S 8,Acts of Parliament,1993(India)
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12. Recovery of Debts due to the Banks and Financial Institutions Act, S 8,Acts of Parliament,1993(India)
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13. Mardia Chemicals Ltd. vs. Union of India AIR 2004 SC 2371,
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14. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,   Acts of Parrliament,2002 ↩︎
15. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,   Acts of Parrliament,2002 ↩︎
16. Icici Bank ltd v official Liquidator of Aps Star Industries Ltd AIR 2011 SC1521 ↩︎
17. Keshavlal Khemchand and sons Pvt Ltd v Union of India  AIR 2015 4  SCC 770 ↩︎
18. Insolvency and Bankruptcy Code, Acts of the Parliament,2016(India) ↩︎