Origin of RDDBFI Act – An Introduction
Banks and financial institutions duly registered with Reserve Bank of India (RBI) provide loan facility to legal entities and individuals (borrowers). In the event where the borrower fails to repay loan amount or any part thereof which also includes unpaid interests and other charges and/or debt becomes Non-Performing Asset (NPA), banks and financial institutions can recover the debt by approaching appropriate judicial forums.
Before, the enactment of the RDDBFI Act, banks and financial institutions were facing huge challenges in recovering debts from the borrowers as the courts were overburdened with large numbers of regular cases due to which courts could not accord priority to recovery matters of the banks and financial institutions. The Government of India in 1981 constituted a committee headed by Mr T. Tiwari, this committee suggested a quasi-judicial setup exclusively for banks and financial institutions which by adopting a summary procedure can quickly dispose-off the recovery cases filed by the banks and financial institutions against the borrowers.
Again in 1991, a committee was set up under Mr Narashmam, which endorsed the view of the Mr T. Tiwari Committee and recommended the establishment of quasi-judicial for the speedy recovery of debts. Pursuant to which Government of India enacted the RDDBFI Act. Through, the RDDBFI Act quasi-judicial authorities were constituted, and the procedure was specified for the speedy recovery of debt.
AUTHORITIES UNDER RDDBFI ACT
Debt Recovery Tribunal
Section 4 provides that, DRT consists of sole member only, known as Presiding Officer.
Section 5, provides that a person who has been or is qualified to become District Judge can be appointed as Presiding Office of DRT.
Section 6 provides that the terms of the Presiding Office shall end after the expiry of the period of 5 years from the date he enters the office and he will be eligible for reappointment provided he has not attained the age of 65 years.
Debt Recovery Appellate Tribunal
Sections 8 to Section 11 deals with the establishment, qualification, and term of the Chair Person of the Debt Recovery Appellate Tribunal (DRAT). DRAT is established to exercise control and powers conferred under the RDDBFI Act. DRAT consist of sole member to be known as Chair Person.
A person is eligible to become a Chair Person, if he has been an or qualified to become a High Court Judge, or has been a member of the Indian Legal Services and held a Grade 1 post as such member for the minimum period of three years or has held office of Presiding Officer of Tribunal for period of at least three years.
The Chair Person of DRAT can hold his office for the period of five years and is also eligible for reappointment, provided, that he has not attained the age of seventy years. DRAT has appellate and supervisory jurisdiction over DRTs.
Who can recover money from DRT under RDDBFI Act?
As per section 1(4), the provisions of RDDBFI Act does not apply where the amount of debt due to the bank or financial institution or the consortium of banks and financial institutions is less than Rupees Twenty Lakhs.
In the case of SARFESAI Act, if the asset has been declared as Non-Preforming Asset (NPA), eligible banks and financial institutions after enforcing security can recover remaining amount under RDDBFI Act which is in excess, of Rupees One Lakh.
What type of debt can be recovered under the RDDBFI Act
As per section 2 (g) debt is any liability inclusive of interest, which is claimed to due from any person by any bank or financial institution or consortium thereof.
Such liability may be secured or unsecured or assigned, whether payable under the order of court or arbitration award or under the mortgage. Such a liability shall be subsisting and validly recoverable on the date of application.
The debt also includes liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrowers by the debenture trustees or any authority in whose favour a security interest is created for the benefit of the holder of the debt security.
Jurisdiction, Powers, and Authority of DRT and DRAT
As per section 17 of RDDBFI Act, vests jurisdiction, power and authority on DRT to entertain and decide application from banks and financial institutions to recover a debt due to such banks and financial institutions.
Further, section 17A confers on DRAT power of general superintendence and control and confers appellate jurisdiction on DRAT. DRAT is also empowered to transfer a case from one DRT to another DRT. DRAT is also empowered to call for information from DRT, about cases pending and disposed of them. DRAT is also empowered to convene the meeting of Presiding Officers. It also empowered to conduct an inquiry of Presiding Officer and recommend suitable action to the Central Government.
Section 18 bars the jurisdiction of any civil court or authority for recovery of debt, except High Court and Supreme Court in the exercise of their writ jurisdiction under Article 226 and 227 of the Constitution of India. Thus in essence order of DRAT can be challenged in writ jurisdiction of High Court or Supreme Court
Application to be filed in local jurisdiction of DRT
An Application has to be filed within the local jurisdiction of relevant DRT, as per section 19(1) of the Act, Application can be filed within the local limit of DRT in whose jurisdiction where:
- the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding;
- the defendant voluntarily resides or carries on his business or works for gain;
- in case there are more than one defendant, at the place where any one of the defendants voluntarily resides or carries on his business or works for gain;
- where the cause of action wholly or partly arose.
Further, where a bank or a financial institution, which has to recover its debt from any person, has filed an O.A and against the same person another bank or financial institution also has claim to recover its debt, then, the later bank or financial institution may join the applicant bank or financial institution at any stage of the proceedings, before the final order is passed, by making an application to that DRT.
The process of due recovery
In terms of DRT act bank and financial institutes may follow the process outlined below to recover dues:
- An application for recovery of debt shall be submitted to the debt recovery tribunal by Bank or Financial Institution for recovery of debts. (Section 19).
- The Tribunal shall conduct expeditious trial while at the same time the tribunal shall not be bound by the Code of Civil Procedure, 1908 and shall be guided by the principles of natural justice. (Section 19 & 22)
- The Tribunal shall dispose of the application expeditiously and effort shall be made to finally dispose of the application within six months from the receipt of the application. (Section 19(8)).
- The Presiding Officer of the Tribunal shall issue a certificate for recovery of the amount of debt and any other relevant dues to the Recovery Officer. (Section 19(7))
- A borrower shall be able for an appeal against the order of the Tribunal within forty days from the receipt of the order of DRT subject to the borrower depositing seventy five per cent of the debt as determined by the Tribunal. (Section 20 & 21)
Recovery Officer shall use the following Modes for recovery of debts , namely:-
(1) Attachment and subsequent sale of the movable /immovable property of the debtor;
(2) Arrest the debtor for detention in prison;
(3) Appoint a receiver for managing the movable or immovable properties of the debtor.(Section 25)
However Procedure followed by Bank and Financial institution after promulgation of Securitization act read harmoniously with DRT act.
- As a starting point, bank’s/FI’s representatives generally visit to the borrower’s place While telephonic reminders were also made by the bank. When reminders / personal visits fail to yield fruitful result Bank/FI authorize an official to take required steps under the Acts through Power of Attorney/ authorization Letter.This is the starting point of legal procedures.
- Banks or financial institutions ordinarily shall not initiate any legal proceeding without giving due notice in writing. Such notice is sent when default in payment is made by a borrower . Notice may be sent through Registered Post /Speed Post /Courier /Fax or E-mail .The notice usually give 10 clear days time to clear or regularize the loan.
- The authorized representative sends Demand Notice for enforcement of Security Interest. This notice shall contain details of the amount due , security interest, Power and authority to repossess the security with the relevant reference of contract/ loan agreement.
- The notice shall be acknowledged by the Borrower . In the event of the failure in the part of the borrower to acknowledge the notice and to respond by way of payment of dues within the time period, it will be considered that the customer/ borrower/ noticee is deliberately avoiding acknowledgement. Accordingly, the Bank will be free to initiate recovery measures for repossession of security under the loan agreement /contract as required.
- If the Borrower avoids demand notice, notice shall be served by affixing the notice in some noticeable place of his residence or business and by publishing the notice in two leading newspapers, among which one shall be in a vernacular language having wide circulation.In case of more than one Borrower , individual notice shall be served to each of them.
- If any reply/representation is received, then the Bank has to properly adjudicate upon and decide.The next step is to take symbolic possession of Secured Assets and Filing an application to the Chief Metropolitan Magistrate or District Magistrate for taking over actual possession of the asset.
- The objective of repossession of security shall be recovery of dues and not to merely deprive the borrower of the property.
- Compliance to the directions/orders of Chief Metropolitan Magistrate /District Magistrate shall be made.
- The recovery process includes repossession of the property, valuation of the property and realizing/unlocking the property value through appropriate means. All these activities need to be carried out in a fair and transparent manner.
- Due process as per law which may include Liaisoning with the Court Receiver, Police authorities, etc shall be required to be followed while taking repossession of the property. The bank will take requisite measures to ensure safety and security of the property after taking custody at the expense in the head of borrower. Accordingly, Insurance cover for the property to be arranged and Security Guards shall be deputed at the Property Site.
- Fees of Police authorities, if any, in case of police force made available for repossession of property by police station to be paid.
- It is desirable to take photograph of the property and then serve a notice in terms of Appendix IV to the Borrower, which also shall be affixed on the Asset. The Bank or financial institutions Name shall be displayed on the Property.
- The aforesaid notice is also required to be published in two leading newspapers including one in vernacular language within seven days.
- The next step is to arrange for sale of the property after valuation by an approved valuer. The valuation done by the the valuer shall be communicated to the debtor before proceeding for sale of property. At the same time, 30 days notice shall be served to the Borrower .
- If sale is planned by way of soliciting tenders from public and public auction, a public notice providing the detail sail terms is required to be published in two widely circulated news papers among which one will be in vernacular language. The borrower/ mortgager shall also be served notice setting out the detail time, date and venue of the auction.
- The Sale of property to be made to the highest bidder. No sale shall be confirmed at price less than reserve price. However, the sale at price less than Reserve price can be made with the consent of Borrower.
- The purchaser is required to submit 25% of the sale price forthwith and balance to be deposited within 15 days. If balance is not paid, the deposit would be forfeited and the property shall be eligible to be resold. Sale of Property will be effective from execution of Sale Deed.
- If the terms of payment as set out have been complied with, the Bank or financial institutions shall issue a certificate of sale to the purchaser. The certificate of sale will specify that the property is free from encumbrances.
- It is advisable for banks /FIs to obtain acknowledgement from buyer that he has taken over the physical possession of property .
- Bank/FIs will return the Excess amount, if any, after recovering the outstanding dues and related expenditure made by bank from the money obtained by sale of property.
- If the dues of the Bank/FI are not fully recovered with the sale proceeds, Bank/FIs shall file an application to Debt Recovery Tribunal or Court having jurisdiction, for recovering the balance amount.
- Any person, aggrieved by any of the measures taken by the secured creditor shall make an application under section 17 of the securities Act to the Debts Recovery Tribunal, within forty-five days from the date on which such measures had been taken.
- Procedure as was prescribed under the DRT Act is to be adopted by the recovery tribunal for disposal of these applications as per section 17 of the Act. Further, any person, aggrieved by an order passed by DRT may file an appeal before DRAT.
- The DRAT will not admit the appeal unless the Aggrieved party deposits with the Appellate tribunal, 50% of the amount or lesser amount as directed by DRAT.
Timelines in DRT/DRAT
As per the DRT act, any application made by the Banks and Financial Institutions is to be dealt by the Tribunal expeditiously. The stipulated time period for Tribunal to dispose off the application is 180 days from the date of receipt of application.
The appeal filed before the Appellate Tribunal shall be disposed off expeditiously .All efforts are required to be made by Tribunal to finally adjudicate on the matter finally within a period of six months from the date of receipt of appeal.
Practically the proceedings before DRT/DRAT may take one to three years or longer depending upon the facts and circumstances of the case.