Debt Recovery Tribunals: A Guide for Businesses

What are DRTs (Debt Recovery Tribunals)?

Since a long time ago, Indian banks and financial institutions have struggled to collect debts from defaulters and enforce securities. The Narasimham Committee of 1991 suggested the creation of Special Tribunals such as DRTs (Debt Recovery Tribunals) s (Debt Recovery Tribunals) and DRATs (Debt Recovery Appellate Tribunal) (Debt Recovery Appellate Tribunals) in order to streamline such proceedings because the process for such recovery was irregular and incredibly time-consuming.

Upon receiving the Committee’s recommendation, lawmakers enacted the Recovery of Debts Due to Banks and Financial Institutions Act (“RDDBFI”) 1993. This act granted authority to DRTs (Debt Recovery Tribunals) and DRATs (Debt Recovery Appellate Tribunals) to adjudicate debt collection cases. 5 DRAT (Debt Recovery Appellate Tribunal) and 39 DRT (Debt Recovery Tribunals) s have been operational since the country’s founding.

Legitimacy of DRT (Debt Recovery Tribunals)

Due to its unconstitutionality and threat to the independence of the judiciary, the Delhi High Court invalidated the RDDBFI in 1995. However, if changes are made to the current Act of RDDBFI, the SC will permit DRT (Debt Recovery Tribunals) s to operate. As a result, the government amended the RDDBFI again in 200 and 2002, and the SC approved them as constitutional. Therefore, in the current situation, DRTs (Debt Recovery Tribunals) s operate in a constitutional manner.

Application Procedures 

In order to speed up the court proceedings, DRTs (Debt Recovery Tribunals) s and DRATs (Debt Recovery Appellate Tribunal) are decided via summary proceedings. The DRT (Debt Recovery Tribunals) has the authority to issue an interim order against the borrower in accordance with Section 19(12) of the Act, preventing him from selling or otherwise disposing of any of his property without the Tribunal’s prior consent. Additionally, the DRT (Debt Recovery Tribunals) has the authority to imprison the borrower for a maximum of three months for any order disobedience or order breach under RDDBFI Act sections 19(12), 19(13), or 19(18).

Duration of case

If a party submits an application through the standard application process, they must conclude the case within 180 days. Nonetheless, if the party brings the application to the DRT (Debt Recovery Tribunals) under the SARFAESI Act, they need to resolve the matters within 60 to 4 months. If the time limit exceeds, either party can file an appeal with DRAT (Debt Recovery Appellate Tribunal) under Section 16 of the SARFAESI Act. DRAT will then instruct the DRT (Debt Recovery Tribunals) to decide whether to proceed with the ongoing case.

As per 19(4), a defendant who lodges an application to a DRT (Debt Recovery Tribunal) has the right to receive a summons within 30 days. This summons requires them to clarify their stance regarding why the sought-after relief should not be awarded. The Tribunal might extend the deadline for the defendant to furnish a written submission, as necessitated. A defendant may also bring a counterclaim in relation to the alleged amount of money against the complainant, but only at the first hearing and only in circumstances where the Tribunal expressly permits it.

The Presiding Officer’s certification authorising the Recovery Officer to recover the debt is based on the DRT’s order. The Recovery Officer may seize, sell, or designate a receiver to manage the defendant’s property in order to collect the debt. Additionally, the DRT (Debt Recovery Tribunals) s have the authority to ask the police for a warrant to detain the offender in these situations.

A DRAT (Debt Recovery Appellate Tribunal) Procedure

Currently, India has five Debt Recovery Appellate Tribunals (DRATs) located in Mumbai, Delhi, Kolkata, Chennai, and Allahabad. As of now, individuals must initiate a DRAT appeal within 45 days of the Tribunal’s order reception, as per Section 20(3) of the RDDBFI Act, to fall within the ambit of that section.

But according to the proviso to 20(3), the Appellate Tribunal may also grant an appeal after the 45-day period has passed if there is good reason to believe that it was not possible to file it before.

Remember that you can also reach out to DRAT (Debt Recovery Appellate Tribunal) in case you need a temporary remedy for an interim application or another component of the initial applications. Consider DRATs (Debt Recovery Appellate Tribunal) as expensive, requiring the aggrieved party to deposit 75% of the amount determined by the order of DRTs (Debt Recovery Tribunals). If the dispute falls under the SARFAESI Act, the deposit cap is restricted to 50% of the claimed amount by the creditor. The defendants frequently refrain from appealing to the DRAT (Debt Recovery Appellate Tribunals) because of these outrageous fees.

Conclusion

As law implementation tests multiple available forums, it reveals that the current law involving the code still experiences perplexity. DRTs’ frightening disposal rate is a result of their inability to reduce the number of open cases. The existence of numerous business-related laws pertaining to debt collection demands and requests for interpretation. A delay in case resolution brought on by concurrent actions is concerning. Unresolved is how the SARFAESI Act, the DRT  Act, and the Code’s provisions interact. An ineffective insolvency regime is a result of concurrent litigation for the same debt before the civil court, the DRT, and the NCLT.