Securitization and debt recovery To give better legal system than the prevailing system

of Code of Civil Procedure, to enforce the speedy adjudication of the matters relating to recovery of

debts due to banks and financial institutions.

A new Act was promulgated

• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was passed to facilitate for the speedy adjudication of matters relating to recovery of debts due to banks and financial institutions.

• It provides a procedure which is different from the existing code of civil procedure.

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Establishment of Tribunal

• The Act provides that the Central Government shall by notification, establish one or more tribunals, to be known as the Debts Recovery Tribunal (DRT), to exercise the jurisdiction, power and authority conferred on such Tribunal by or under the Act.

• The setting up of a Debt Recovery Tribunal is mainly dependent upon the number of cases.

CRITERIA FOR SETTING UP OF DRTs

• Higher the volume/number of cases within a territorial, more the Debt Recovery Tribunals would be set up.

• With a view to help banks & FIs recover their bad debts quickly and efficiently, the Government of India has constituted thirty three DRTs and five Debt Recovery Appellate Tribunals all over the country.

Composition of Tribunal

• Each DRT is presided by a Presiding Officer. The Presiding Officer is generally a judge of the rank of District and Sessions Judge.

• A Presiding Officer is assisted by one or more Recovery Officers and other officers and employees as the Government may deem proper.

• These officers & employees of a Tribunal shall discharge their functions under the general superintendence of the Presiding Officer.

Establishment of Appellate Tribunal

• The Central Government has constituted five Debt Recovery Appellate Tribunals in country. An Appellate Tribunal is headed by the Presiding Officer.

• Any person, who is, or has been, or qualified to be, a judge of High Court, or has been a member of the Indian Legal Service A grade with at-least three years service or has held office as Presiding Officer of a Tribunal for at-least three years, shall be qualified for appointment as Presiding Officer of an Appellate Tribunal.

Procedure of TRIBUNALS

• Section 19 of the Act provides that where a Bank or a FI has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction the defendant, or each of defendants where there are more than one, at the time of making the application, actually and voluntary resides or carries on business or personally works for gain.

Procedure of Tribunals

• When a Bank or a FI, which has to recover its debt from any person, has filed an application to the Tribunal and against the same person an another bank or FI also has a claim to recover its debt, then, the later bank or FI may join the applicant bank or FI at any stage of the proceedings, before the final order is passed by making an application to the Tribunal.

Procedure of filing application

• Every application has to be made in such form and be accompanied by requisite documents or the evidence along-with prescribed fee.

• On receipt of application, the Tribunal shall issue summons requiring the defendant to show cause within thirty days of the service of summons as to why the relief prayed for should not be granted.

Procedure to be followed by defendant during claimed filed by B/FI

• The defendants shall, at before the first hearing or within such time as the Tribunal may permit, present a written statement of his defence. Where the defendant claims to set-off against the applicant’s demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement comprising/containing the particulars of the debt sought to be set-off.

• Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such orders on the application as it deems fit to meet the ends of justice.

• A counter-claim shall have the same effect as a cross-suit so as to enable the Tribunal to pass a final order on the same application, both on the original claim and on the counter-claim.

• The applicant shall be at liberty to file a written statement in answer to the counter-claim of the defendant within such period as may be fixed by the Tribunal.

• The Tribunal may make an interim order against the defendant to debar him from transferring, alienating or otherwise dealing with, or disposing of, any property & assets belonging to him without the prior permission of the Tribunal.

• Tribunal can pass orders of wide variety, but they are slow and cautious while passing such orders, considering the judgements of the Supreme Court and the High Court which have laid down conditions which must be followed by DRT. Therefore, they generally would first listen to the defendants before the orders are passed.

• Where at any stage of the proceedings, the Tribunal is satisfied by affidavit or otherwise, that the defendant, with intent to obstruct or delay or frustrate the execution of any order for recovery of the debt that may be passed against him.

• The tribunal may direct the defendant, within a time fixed by the tribunal, either to furnish security, in such sum as may be specified in the order or to appear and show cause why he should not furnish security.

• Where it appears to the Tribunal to be just and convenient, it may by order:

• Appoint a receiver any property, whether before or after the grant of certificate for recovery of debt;

• Remove any person from the possession, custody of the property;

• Commit the same property to the possession, custody or management of the receiver;

• Confer upon the receiver all such powers, as to bringing and defending suits in the courts, or filing and defending applications before the Tribunal and for the realization, management, protection, preservation and improvement of the property and disposal of such rents and profits, and the execution of the documents as the owner himself has, or such of those powers as the Tribunal thinks fit, and

• Appoint a Commissioner for preparation of an inventory of the properties of the defendant or for the sale thereof.

• Finally the Tribunal may make such orders and give such directions as may be necessary or expedient to give effect to its process or to secure the ends of justice.

Appeal to the Appellate Tribunal

• Section 20 of the provides that any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to DRAT having jurisdiction in the matter.

• No appeal shall lie to the DRAT from an order made by a Tribunal with the consent of parties

• Appeal should be filed within 45 days from the date on which a copy of order made.

• On receipt of an appeal, the Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

• The Appellate Tribunal shall send a copy of every order, made by it to the parties to the appeal and to the concerned Tribunal.

Deposit of amount of debt due, on filing appeal

• Where an appeal is preferred by any person from whom the amount of debt is due to a Bank or a FI, such appeal shall not be enter-tainted by the Appellate Tribunal unless such person has deposited 75% of the amount of debt due from him as determined by Tribunal.

• Provided that the Appellate Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited.

VITAL POINTS OF THE RECOVERY OF DEBTS DUE TO BANKS AND FINANACIAL INSTITUTION ACT, 1993

The Act was passed to provide for the speedy adjudication of matters relating to recovery debts due to banks and financial institutions,

As of now, there are twenty nine Debts Recovery Tribunals and five Debt Recovery Appellate Tribunals across the country constituted by the Government of India.

Section 19 of the Act deals with the procedure for making application to the Debt Recovery Tribunal.

Section 20 of the Act deals with provisions for an appeal to an Appellate Tribunal having jurisdiction in the matter.

The Tribunal and the Appellate Tribunal have the same powers as are vested in a civil court under the Code of Civil Procedure,1908.

The Recovery Officer may proceed to recover the amount of debt by any of the specified modes under Section 25 of the Act.

Any person who is aggrieved by an order of Recovery Officer may prefer an appeal to the Tribunal.

Setting of up Debt Recovery Tribunal