Working of DRTWorkings of Debt Recovery Tribunals

ContentsPg. No.

1. What is Banking? A Brief Overview2-12

a. Definition of a Banker2

b. Definition of a Customer2

c. Relationship between a Banker & a Customer3

d. Banks Loan Policy, Recovery Policy & Management of NPAs3-5

2. Debt Recovery tribunals

a. What is a DRT? Why was it set up?

b. Composition of DRT

c. Judicial Powers given to DRT

d. Extent of Operation, Jurisdiction & salient features of the Act

e. Steps to lodge a complaint5-9

f. Limits for DRT Case9

g. Powers, Functions, Duties of the Registrar9-10

h. What is DRAT? Where does DRAT come in?10-13

3. Proceedings of a Civil Court in similar case13-15

a. Judicial Powers of Civil Courts13

b. Workings of Civil Courts14

4. Comparison of Case in Civil Court with Case in DRT 16-18

5. Where does SRFAESI Act come in?19-21

6. Limits for SRFAESI Act22-25

7. Benefits of DRTs26-29

8. Benefits of Civil Courts30-31

9. Disadvantages of DRTs32-35

10. Disadvantages of Civil Courts36-38

11. How has introduction of DRT, DRAT, & SRFAESI changed the debt collection & recovery scenario?39-42

12. DRT Cases (Bank of Baroda v/s Universal Textiles)43-49

13. What are its future prospects?49-50

WHAT IS BANKING? A BRIEF OVERVIEW

a.) Definition of a BANKERThe word Banker has not been defined in any statute. However, Sir John Paget defines the term Banker as No person or body corporate or otherwise can be a banker who does not-(i) Take deposit accounts.(ii) Take current accounts.(iii) Issue & Pay cheques and(iv) Collect cheques, crossed & uncrossed, for his customers.Sec.5 (b) of the Banking Regulation Act, 1949, defines the word Banking as: Banking means accepting, for the purpose of lending, or investment, of deposits of money from the public, repayable on demand, or otherwise and withdrawable by cheque, draft, cheque, order, or otherwise.So, the basic requirements for a body corporate or otherwise to be called a Banker or Banking Company are:(i) Accepting deposits from public(ii) Lending or investing the money so collected by the way of deposits.(iii) Allowing withdrawals of deposits on demand or by any other means.(iv) Collecting cheques from his customers.

b.) Definition of a CUSTOMERThere is definition of a Customer available with any statute. The word is derived from the word Custom which means a habit or tendency to do certain things in a regular or particular manner.The generally accepted definition of a Customer is A person who maintains any type of account with the bank, whether it is a deposit account or a borrowal account.It has been held that a person frequently visiting the branch of a bank for transacting banking business like purchase of a draft, encashing a cheque, etc., is not a customer if he does not maintain any account with the branch.A person will be deemed to be a customer even if he has only handed over the account opening form to the bank and the bank has accepted to open the account, even though account has actually been opened in the books of the bank.The term customer should be used only with respect to the branch, where he is maintaining an account. He cannot be treated as a customer for other branches of the same bank.

c.) Relationship between a BANKER & a CUSTOMER When a customer opens an account with a bank, he enters into an agreement/contract. The relationship between the banker & customer, in such cases is essentially that of a debtor & creditor respectively, depending upon whether the account opened is a deposit account or a borrowal account.In the case of all deposit accounts, Banker is a debtor & the Customer is a creditor. In the case of any loan/advances account, the Banker is the creditor & the Customer is the debtor.However, with the variety of services rendered by the banks, in addition to opening of a deposit/loan account, the relationship becomes more wide & complex. The banker thus also acts as a bailey, trustee, agent, principal, lessor, etc., depending upon the type of services rendered & nature of transaction, as illustrated below:-`

Sr. No.

Nature of TransactionRelationship of Bank

1.DepositsDebtor

2.Loans/AdvancesCreditor

3.Bills TT/DD/MT PayableDebtor

4.Bills Purchased/DiscountedHolder for Value

5.Bills for CollectionAgent

6.Safe Deposit LockerLessor

7.Safe CustodyBailey

8.Credit InvestigationReferee

9.Executor & TrusteeTrustee

10.Custodial ServicesCustodian

*These numerous kinds of relations between the banks on one hand & the customer on the other hand, give rise to several obligations on the part of the banker and also confer various rights associated with it.

d.) A Bankers Rights & Duties

* Duties of a Banker:Having regard to the nature of relationship developing between a banker & a customer, the Banker has certain duties vis--vis his customer. These are (1) Duty to honor cheques drawn by customers on their accounts.(2) Duty to maintain secrecy/confidentiality of the customers accounts.(3) Duty to render proper accounts for services rendered.

Duty to Honor Cheques drawn by customers on their accounts:-As banking means accepting of deposits withdrawable by cheque, draft, order or otherwise, the banker is duty-bound to honor cheques issued by customers on their accounts.Further, Section 31 of the Negotiable Instruments Act, 1881 lays down that The drawee of a cheque (banker) having sufficient funds of the drawer in hand, properly applicable to the payment of such cheque must pay the cheque when duly required to do so & in default of such payment must compensate the drawer for any loss or damage caused by such default.

Duty to maintain Secrecy/Confidentiality of Customers Accounts.Banker has a duty to maintain secrecy of customers accounts. This duty of secrecy is not only a moral one but also a legal one arising out of the implied terms of the contract with the customer at the time of opening an account.The underlying principle behind this duty is that if the balances in the accounts and financial position of the customer & details of dealings in customers accounts are disclosed to any unauthorized person it may harm the reputation of the customer financially or otherwise and the bank may be held liable.There are certain circumstances, under which a banker can disclose information regarding customers account to a person other than the customer like Disclosure under compulsion of Law, Disclosure under express or implied consent of the Customer, Disclosure to protect national interest, Disclosure to protect banks own interest, Disclosure under banking practices, etc.

Duty to render proper accounts for services renderedBank has a duty to render proper accounts of the customers transactions with it. While it is customary for the bank to submit a statement of accounts maintained by the customer, they also advice the customer of the credits & debits initiated by them to enable the customer to know the balance in his account.

* Rights of a Banker:In addition to the various duties of a banker vis--vis his customer, the banker also has certain rights vis--vis his customer. The rights can be broadly classified as (1) Right of General Lien(2) Right of Set Off(3) Right of Appropriation(4) Right to charge interest, Commission, Incidental Charges etc.

Right of General LienRight of Lien is the right of a creditor to retain in his possession the goods & securities owned by the debtor until the debt has been repaid. This right does not confer the right of sale of such goods & services.There are two types of lien viz. (a) Particular Lien and (b) General LienA particular lien gives the right to retain only possession of those goods in respect of which the dues have arisen, e.g. a tailor retaining possession of a suit he has stitched for a customer until the stitching charges are paid.A general lien gives the right to retain possession of any goods in the legal possession of the creditor until the whole of the debt due from the debtor is paid.

Right of Set-OffBankers right of set-off is a statutory right, which enables it to combine several accounts of a customer in his own right unless there is any agreement express or implied to the contrary.Even though the right of set-off is available to the banker as a legal right, banks usually take a letter of set-off from the customer to overcome future legal complications and it also dispenses with the need of notice.

Right of AppropriationWhen there are two or more accounts wherein amounts are due from customer to the bank, and the customer deposits some money without indicating the account to which it should be credited a question arises as to the appropriation of the said amount.Section 59, 60 & 61 of the Indian Contract Act, deal with appropriations of payments.

BANK LOAN POLICY, RECOVERY POLICY & MANAGEMENT OF NPAs

BANK LOAN POLICY(Domestic Loan Policy 2012- also known as Credit Risk Policy of the Bank)

Banks Loan Policy is devised for regulating the Banks resources towards remunerative means, for directed national priorities & also achieving uniformity in lending bank-wide. This policy is meant to cover the macro & micro issues at the broad policy level. The objectives of the loan policy would precisely be as follows:-1. To optimize the risk & return envisaged in order to see that Economic Value Addition to shareholders is maximized & the interests of all the stake holders are protected alongside ensuring corporate growth and prosperity with safety of Banks resources.2. To ensure credit growth both quantitatively & qualitatively through various channels in line with the common goals & objectives of the Bank.3. To build up & maintain a well diversified & fairly high yielding credit portfolio by means of augmentation of interest & non-interest income.4. To comply with the national priorities in matter of deployment of institutional finance to facilitate easily planned growth in various productive sectors of the economy.5. To provide need based & timely credit to various borrower segments.6. To strengthen the credit delivery system & to instill a sense of credit culture enterprise-wide.7. To strengthen the Credit Risk Management System with parameterization of risk identification, measurement, monitoring & mitigation.8. To set up prudential expose norms and to address issues of credit concentration.9. To provide for risk based Loan Pricing Policy.10. To comply with various regulatory requirements, more particularly on expose norms, priority expose norms, income recognition and asset classification guidelines, capital adequacy, credit risk management guidelines etc., of RBI/other authorities.

Bank believes in creating and maintaining Enterprise-wide strong credit & risk culture on an on-going basis. The bank strikes a balance between the business growth and incremental risk for deciding the business plan & strategy for each year, but as a matter of policy the bank seeks to maintain a low risk profile, however with due flexibility so as to capture remunerative business at all points of time. Accordingly the bank mends its lending channel to suit its risk return-trade off policy, suitably blended to business needs.

Know Your Customer (KYC) Norms:-Know Your Customer should be the key principle for identification of an individual / corporate while opening an account. The customer identification / verification should be through an introductory reference from an existing account holder / a person known to the bank or on the basis of documents provided by the customer in accordance with RBI guidelines issued from time to time.The KYC norms are not only for establishing the identity of the person but also satisfying about his credentials by obtaining an introductory reference from a known person. The due diligence expected under KYC procedures involves going into details. It is not a responsibility which ends with opening of the accounts and monitoring of transactions in the initial few months of opening the account, but monitoring should be an ongoing process. Key elements of a KYC Policy are:-a.) Customer Acceptance Policyb.) Customer Identification Processc.) Monitoring of Transactionsd.) Risk Management

Credit Risk Management:-Credit Risk Philosophy, architecture and the system are as under:a) A Sub-Committee of Directors has been constituted by the board to specifically oversee & co-ordinate risk management functions in the bank.b) Credit Risk Management cells deal with identification, measurement, monitoring and controlling of credit risks within the prescribed limits.c) Credit Risk Management cells deal with enforcement & compliance of risk parameters and prudential limits set by the board/regulator etc.d) It also manages laying down risk assessment systems, developing MIS and monitoring quality of loan portfolio etc.e) And it also handles improving credit delivery system upon full compliance of laid down norms & guidelines.Banks are also required to set up the Risk Management Department with dedicated cells within the Department like- Economic Forecasting Cell (EFC) Corporate Research Cell (CoRC) Portfolio Review Cell (PFC) Credit Review Cell (CRC)

BANK RECOVERY POLICY, 2011The basic objective of the recovery policy is to maximize the recovery of dues under the NPA, PWO/TWO portfolios of the bank through effective monitoring and follow up and taking various legal and other actions to maximize to maximize recovery in Non Performing Assets (NPAs) and prudential written off accounts.For property/assets having individual value of over Rs. 5 Crores & above, valuation should be obtained from two approved Valuers independently.

DEBT RECOVERY TRIBUNALS

a.) What is a Debt Recovery Tribunal? Why was it set up?Banks and financial institutions have generally been filing suits in various courts against their defaulting borrowers for recovering their dues and enforcement of securities charged to them. The existing procedure for recovery of debts due to banks through the courts has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of funds for the development of the country.The committee on Financial Systems headed by Shri Narasimhan had recommended the setting up of special Tribunals with judicial powers for adjudication of suits & ensure speedy recovery of dues to banks & financial institutions keeping in view the above points, The Government of India, in implementing the aforesaid recommendations, has passed a bill in the parliament (Act 51 of 1993) titled The Recovery of Debts due to Banks and Financial Institutions Act, 1993 which came into force with effect from 24.06.93 . The Government of India has constituted thirty three (33) Debt Recovery Tribunals and five (5) Debt Recovery Appellate Tribunals across the country. The Debt Recovery Tribunals are located across the country. Mumbai & Delhi have 3 Debt Recovery Tribunals, whereas Chennai & Kolkata have 2 Tribunals each. One Debt Recovery Tribunal each has been constituted at Ahmadabad, Allahabad, Aurangabad, Bengalooru, Chandigarh, Coimbatore, Cuttack, Ernakulum, Guwahati, Hyderabad, Jabalpur, Jaipur, Lucknow, Nagpur, Patna, Pune, Ranchi & Vishakhapatnam. Depending upon the no. of cases in an area, a debt recovery tribunal is constituted.There are many states that do not have a debt recovery tribunal set up. The banks and financial institutions in those states have to go to Debt Recovery Tribunals in other states having jurisdiction over their area. Thus the territorial jurisdiction of certain Debt Recovery Tribunals is very vast. For example, the Debt Recovery Tribunal situated in Guwahati has jurisdiction over all 7 North Eastern States. Similarly, the Debt Recovery Tribunal set up at Chandigarh has a wide jurisdiction over the states of Punjab, Haryana and Chandigarh.

b.) Composition of Debt Recovery TribunalEach Debt Recovery Tribunal is presided over by a Presiding Officer. The Presiding Officer is generally a judge of the rank of District & Sessions Judge. A presiding officer of a debt recovery tribunal is assisted by a number of officers of other ranks, but none of them need necessarily have a judicial background. Therefore the Presiding officer is the sole judicial authority to hear and pass any judicial order. Each debt recovery tribunal has two Recovery Officers. The work among the recovery officers is allocated by the Presiding Officer. Though a Recovery Officer need not be a Judicial Officer, but the orders passed by a Recovery Officer are judicial in nature, and are appealable before the Presiding Officer of the Tribunal.c.) Judicial Powers given to DRTThe Debt Recovery Tribunals are governed by provisions of the Recovery of Debt Due to Banks & Financial Institutions Act, 1993, also popularly called as the RBD Act. Rules have been framed and notified under the Recovery of Debts Due to Banks & Financial Institutions Act, 1993.After the enactment of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interests Act (SRFAESI Act) borrowers could become first applicants before the Debt Recovery Tribunal. Earlier only lenders could be applicants.The Debt Recovery Tribunals are fully empowered to pass comprehensive orders like in Civil Courts. The tribunal can hear cross suits, counter claims and allow set offs. However they cannot hear claims of damages or deficiency of services or breach of contract or criminal negligence on the part of the lenders.The debt recovery tribunal can appoint receivers, commissioners, pass ex-parte orders, ad-interim orders, interim orders apart from powers to review its own decision and hear appeals against orders passed by the Recovery Officers of the Tribunal.The recording of evidence by debt recovery tribunal is somewhat unique. All evidences are taken by way of an affidavit. Cross examination is allowed only on request by the defense and that to if the Tribunal feels that such a cross examination is in the interest of justice. Frivolous cross examination may be denied. There are a number of other unique features in the proceedings before the debt recovery tribunals, all aimed at expediting the proceedings.

d.) Extent of Operation, Jurisdiction & Salient Features of Act-The Act has a provision for making appeal before the Appellate tribunal to be filed within 45 days from the date of receipt of the copy of order of the Tribunal.-The Act also provides for preferring an Appeal before any High Court or Supreme Court under articles 226 & 227 of the Constitution of India, against the order of any Recovery tribunal [Section -18].-The Act makes a pre condition for depositing of 75% of the amount of certificate issued by the Presiding Officer (P.O.) before preferring an appeal. [Section -21]-The Act also has a provision directing the Presiding Officer to make endeavor to dispose-off the application within -6- months from the date of receipt of the application [Section 19(8)].-The Act provides that the Tribunal should initiate process within one month from the date of receipt of application [Section 19(5)].

-The provisions of the Limitation Act, 1963 are applicable to all the proceedings before the Tribunal [Section 24].-The Act provides that on the day of the establishment of the Tribunal by a notification of Government of India, all the suits or other proceedings of Rs. 10 lacs/- or above would stand transferred to the respective Tribunals [Section 31].-The Tribunal has got powers to issue orders for arrest and detention of a person in prison as a mode of recovery.-The Act permits authorized Bank/Financial Institution Officers to file appearance before the Tribunal and it is not necessary that an Advocate/Counsel should appear [Section -23].-The Defendant is given -30- days time to reply show-cause notice issued by Tribunal [Section -19(31)].-Each facility would be separate cause of action (Rule-10) and separate application with prescribed fees has to be filed.

e.) Steps to Lodge a ComplaintTaking legal action for recovery of dues is the last resort for any bank or financial institutions. Hence before filing the suit, the bank or financial institution must examine and make sure that all other alternate sources for recovery of the money have been completely exhausted. Efforts made for recovery of dues by way of compromise have been futile and appropriate action under SRFAESI Act has been initiated.There are certain steps that need to be followed before you file the actual complaint. The institution must make sure of all other aspects of the loan or debt. Only after recovery through all other sources has failed that filing a case with DRT or a civil court should be considered.

Steps for filing DRT Case:-Sr. NoDetails

1.Please ensure that the documents are within limitation as per Limitation Act. Do proper scrutiny of account. Go thru the file of the account right from sanction. Understand all the issues in the account. Visit the unit. Find out the present status and value of the security. Visit borrowers & guarantors. Asses their present economic activity & present income along with their present address so that summons can be served. Ascertain whether we can recover major portion of the dues by initiating legal action. Multiple accounts of the same borrower can be cleared.

2.Make proper scrutiny of documents. Check whether all documents are properly filled, properly stamped & properly executed. If there are any weaknesses in the documentation, they should be immediately rectified. If required obtain opinion from approved advocates. Please ensure that suit is filed in the appropriate court, i.e. proper jurisdiction.

3.Approach at least six months in advance during the validity of documents to higher authorities for obtaining permission to file suit. For this purpose you have to submit the information in Enclosure 4 of Recovery policy 2009.

4.After getting permission serve the recall notices to borrower and guarantors. Preserve the Acknowledgements properly.

5.In case of co-operative societies, we have to issue a 60 days notice to Co-operative registrar, informing him about our intention to take legal action for recovery of over dues, if borrower fails to clear the overdues in response to our legal notice.

6.If response of the borrower is positive and borrower is ready to settle the account by compromise or by selling the securities, his request should be dealt with accordingly. There is no need that once we issued legal notice, we have to file suit. Here check the position of documents and up to which date they are valid. Any correspondence with Borrower should be made WITHOUT PREJUDICE on the top of letter.

7.Preparation Original application from local advocate. Before entrusting the account to the advocate, ascertain the abilities of the advocate, his past experience of handling such cases, etc.

8.Once the *OA is prepared, read it carefully. All documents forming part of OA which are in vernacular must be translated in English and translated copies must be included in OA. Check all details mentioned in it, Verify the facts and figures ensure correctness of the same viz. name of borrower, guarantors addresses, ages, activity, details of facilities limit, outstanding, rate of interest total dues. Prayers made for interim orders.1. Prayer to disclose on oath all the assets in the name of defendants by way of affidavit1. Appointment of commissioner for taking inventory1. Injunction in respect of immovable / movable property.1. Defendant to insure the properties, failing which bank may be permitted to insure the property and include the premium in claim amount.1. Passports of defendant to be submitted to registrar of DRT1. Annual returns of Income Tax to be filed with DRT

Check whether adequate stamp duty has been paid. There is a provision in DRT if the suit is getting time barred, you can file suit by paying stamp duty of Re.1 and remaining stamp can be paid afterwards. Check jurisdiction of DRT. No cash is accepted in DRT all payments be made through DD, Bankers cheque or Indian postal Order.

9.Notice for interim orders to be served to all parties.

10.If orders for appointment of commissioner have been passed and the inventory report has been filed, branch to take immediate steps to file an application to seize and sell the property.

11.Notice for main application to be served to all concerned along with true copy of application and other documents.

12.If summons is not served on defendants then request for paper publication of summons may be made to registrar of DRT. Respondents who are served and not appeared may be set ex-party and the respondents appeared may be permitted to file Written Statement.

13.If summons is not served on defendants then request for paper publication of summons may be made to registrar of DRT. Respondents who are served and not appeared may be set ex-party and the respondents appeared may be permitted to file Written Statement.

14.On filing of **WS considering the allegations made in the plaint and admission / denial made in the written statement, Claim affidavit of proof of all the relevant witness to be filed by the bank.

15.In reply to proof affidavit respondents will counter affidavits. There is no Examination of Witnesses in DRT. OA is based on documents produced by the parties If necessary both the parties may seek for permission to produce Witnesses.

16.After filing counter affidavit or cross examination, case will be posted for final arguments.

17.After final arguments made by both the parties, orders will be passed by presiding Officer by fixing the date.

18.In pursuance of the final orders passed a recovery certificate will be issued by the presiding officer and will be entrusted to recovery officer. For recovery in OA Recovery officer will separately number Recovery certificate by giving Recovery proceeding Number and further proceedings will be conducted on the Board of RO.

19.We have to obtain copy of RC and examine as under Whether RC has been issued as per the prayers made in OAIf any relief has not been granted, assess the reasonsObtain opinion of our advocate in writing about whether the bank should go for appeal and chances of success. Here we have to assess materiality aspect. E.g. unapplied interest has not been allowed or unapplied interest has been allowed at lower rate. But if based on present value of security available and present net worth and income of the borrower and guarantor it will be difficult to recover principal amount, then there will be any reason to file appeal to allow the unapplied interest at contracted rate.

20.To follow up with DRT for preparation of Demand Notices. DRT has to prepare and send the Demand notices. Branch to assist the DRT for this.

21.Affidavit regarding servicing of notices to be filed .In the same affidavit branch may pray for attachment of charged and uncharged properties.

22.After filing affidavit and request application for attachment, Recovery Officer (RO) will issue Warrant of Attachment of Property. It is duty of the Branch Manager to identify the property He must be able to show the property to the Recovery Inspector who will come for carrying out the Panchnama. Board will be fixed on the spot informing the public at large that the property is attached by RO DRT under Recovery proceeding No. and unauthorized person should deal with or enter the property .Please ensure Panchnama is not signed by Bank employees as Panchas. Panchas should be outsiders invariably.

23.Then Recovery Officer will issue order for valuation of the property by panel valuer of DRT and He will submit the report in confidence to ***RO copy will not be made available to Bank till publication of sale proclamation.

24.Then Recovery officer will issue notice for settling terms to borrower and guarantors especially in whose name property is standing. After serving notice The borrower is expected to inform the dues and other encumbrances on the property if an .i.e. PF Sale Tax Corporation tax ETC If nothing is informed then in sale proclamation RO will specify about the same

25.Ro will then scrutinize the Valuation report and decide Reserve price below which property will not be sold .Generally the valuation report contains three values: Govt. Value, Market Value and Distress value. Govt. value is lowest and Market Value is Highest. Distress value is 15- 20% less than the Market value and it is taken as Reserve price. He will also decide quantum of Earnest money deposit. This may vary from 5 to 15% of reserve price. Then Sale proclamation is published in local news paper in Two languages one in English and the other is Vernacular .The date of Auction should be 30 days after the date of publication.

26.on the date of auction RO will check whether any payment is received in Recovery proceedings whether any Stay order is served to stay the auction if not He will proceed with Auction .he will collect the Bids and auction will start with the Highest Bid received the person who has paid earnest money deposit will be allowed to increase the bid amount and highest successful bidder will be declared as purchaser .Then Successful bidder has to de[post 25% of the amount of bid after deducting EMD within 24 hours and remaining 75 % amount be deposited within 15 days if 25% amount is not deposited EMD will be forfeited if 75% amount is not deposited the amount of 25% deposited is forfeited.

27.After depositing entire amount of bid in the DRT then again after 15 days RO will ask the successful Bidder to deposit Poundage fees in DRT it will be as under2% of First Rs. 1000.And 1% of Remaining Bid amount.There after RO will issue Sale certificate and confirmation of sale to successful bidder after ensuring there are no stay orders received from Higher court. The successful bidder will thereafter get the sale REGISTERED WITH REGISTRAR of Assurances RO will not be required to be present before Sub registrar.

28.There after Ro will order Branch Manager for handing over the peaceful possession of the property to successful bidder if there is resistance He should request RO for help of Recovery Inspector of DRT and Police.

29.Then Branch manager has to obtain possession receipt for having received peaceful possession of the property and produce it before Ro who will in turn handover Auction amount to bank.

30.If at any stage there is compromise between the bank and Borrower then the Consent Terms must be filed before DRT.

*OA- Original Application; **WS- Written Statement; ***RO- Recovery Officer

Important Points to be Noted:- OA should be verified by the Zonal Legal Manager if amount involved is Rs.50 Lacs & above. OA must be properly stamped. Appeal can be filed against decision for DRT with Debt Recovery Appellate Tribunal (DRAT) within 45 days. Application Fee:- Where claim amt. is Up to Rs.1000000/- Rs.12000/- More than Rs.1000000/- Rs.12000/- + Rs.1000/- for every one Lakh of debt due or part thereof in excess of Rs. 10 Lakh/-, subject to maximum of Rs.1500000/-

f.) Limits of Debt Recovery Tribunals -The Recovery of Debts due to Banks and Financial Institutions Act, 1993 applies to the whole of India, except the state of Jammu & Kashmir.-The Act, for the time being, applies to cases involving claim for recovery due to any Bank or Banks or financial institutions of Rs 10 Lacs/- or more. However, the government of India is empowered to lower the limit up to Rs. 1 Lac/- when required.-The Act also applies to debts due of Rs. 10 Lacs/- or more of a subsidiary bank or Regional rural bank.-The Act does not apply to Co-Operative Banks & State Level Financial Institutions.

g.) Powers, Functions & Duties of the Registrar-The Registrar shall have custody of the records of the Tribunal and shall exercise such other functions as are assigned to him under these rules or by the Presiding Officer by a separate order in writing.-The official seal shall be kept in the custody of the Registrar.-Subject to any general or special direction by the Presiding Officer, the seal of the Tribunal save under the authority in writing from the Registrar.In addition to the powers conferred elsewhere in these rules, the registrar shall have the following powers and duties subject to any general or special order of the Presiding Officer, namely:-to receive all applications & other documents including transferred applications;-to decide all questions arising out of scrutiny of the application before they are registered.-to require any application presented to the Tribunal to be amended in accordance with the rules;-Subject to directions of the Presiding officer, to fix the date of hearing of the applications or other proceedings and issue notices thereof;-direct any formal amendment of records;-to order grant of copies of documents to parties to proceedings;-to grant leave to inspect the record of Tribunal;-dispose of all matters relating to the services of notices or other processes, applications for the issue of fresh notices for extending the time for or ordering a particular method of service on a respondent including a substituted service by publication of notice by the way of advertisements in the newspapers;-to requisition records from the custody of any court or other authority;

h.) What is Debt Recovery Appellate Tribunal (DRAT)?Where does DRAT come in?The Government of India constituted 33 Debt Recovery Tribunals under The Recovery of Debts due to Banks and Financial Institutions Act, 1993. However, as banks & financial institutions started filing complaints, the defendants, wanted to contest the decision. So the Government constituted 5 Debt Recovery Appellate Tribunals across the Country wherein the decisions of the Tribunal could be challenged without having to take recourse to civil courts.The Presiding Officer of an Appellate Tribunal shall be a person who has been or is qualified to be a High Court Judge.A Tribunal shall exercise powers from the appointed day to decide applications from Banks & Financial Statements for recovery of debts due to them.Tribunal & Appellate Tribunal shall have same powers as are vested in a Civil Court in respect of (a) to (h) of Section 22(2).A Jurisdiction of High Courts & Supreme Court only. On and from the appointed day no court or other authority shall have or be entitled to exercise any jurisdiction, powers or authority except the Supreme Court and a High Court exercising jurisdiction under Article 226 & 227 of the Constitution in relation to matters before the Tribunal or the Appellate Tribunal. Procedure for filing Appeals in the Tribunal1.A memorandum of appeal shall be prescribed in the form annexed to these rules (APPENDIX II) by the appellant either in person to the Registrar of the Appellate Tribunal within whose jurisdiction his case falls or shall be sent by registered post addressed to such registrar.

2.Where the appellant is a Bank or Financial Institution, a memorandum of appeal may be preferred: By one or more legal practitioners authorized by such bank or financial institution, or By any of the officers of such bank or financial institution to act as Presenting Officer and every person so authorized may present the appeal before the appellate tribunal

3.Where the appellant is other than a bank or ancial institution, he may prefer an appeal in person or by his agent or by a duly authorized legal practitioner.

4.An appeal sent by post under (i) shall be deemed to have presented to the registrar on the day on which it is received in the office of the registrar.

5.The appeal under sub-rule (1) shall be presented in four sets in a paper book along with an empty file size envelope bearing full address of the respondents are more than one, then sufficient number of extra paper books together with empty file size envelopes bearing full address of each respondent, shall be furnished by the appellant.

Presentation and scrutiny of memorandum of appeal:-

1.The registrar shall endorse on every appeal the date on which it is presented under that rule and shall sign endorsement.

2.If, on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number.

3.If an appeal on scrutiny is found to be defective and the defect noticed is formal in nature, the registrar may allow the appellant to rectify the same in his presence and if the said defect is not formal in nature, the registrar, may allow the appellant such time to rectify the defect as he may deem fit.

4.If the concerned appellant fails to rectify the defect within the time allowed in (3) above, the registrar may by order and for reasons to be recorded in writing, decline to register such memorandum of appeal.

5.An appeal against the order of the registrar under (4) above shall be made within -15- days of making of such order to the Presiding Officer concerned in his chamber, whose decision thereon shall be final.

*the memorandum of appeal shall be filed by the appellant with the Registrar of the appellate tribunal having a jurisdiction in the

*every memorandum of appeal under section 20 of the act shall be accompanied with a fee specified as follows:-

Amount of Debt DueAmount of Fees payable

1. Less than Rs. 10 Lacs/-Rs. 12,000/-

2. Rs. 10 Lacs/- or more but less thanRs. 30 Lacs/-Rs. 20,000/-

3. Rs. 30 Lacs/- or moreRs. 30,000/-

6.Every memorandum of appeal filed under rule 5 shall set forth concisely under distinct heads, the grounds of such appeal without any argument or narrative, and such grounds shall be typed in double line space on one side of the paper.

7.Every memorandum of appeal shall be in triplicate and shall be accompanied with two copies (at least one of which shall be a certified copy) of the order of the Presiding Officer of Debts Recovery Tribunal or order made by the Recovery Officer under section 30 of the act, as the case may be, against which the appeal is filed.

8.Where the parties to the appeal are being represented by an agent, documents authorizing him to act as such agent shall also be appended to the appeal. Provided that where an appeal is filed by a legal practitioner, it shall be accompanied by a duly executed Vakalatnama.

9.Where a bank or a financial institution is being represented by any of its officers to act as presiding officer before the appellate tribunal, the document authorizing him to act as a presiding officer shall be appended to the memorandum of appeal.

10.Plural remedies: a memorandum of appeal shall not seek relief or reliefs based on more than a single cause of action in one single appeal unless the reliefs prayed for are consequential to one another.

11.Endorsing a copy of appeal to the respondents: a copy of the memorandum of appeal and paper book shall be served on each of the respondents, as soon as they are filed by the Registrar by registered post.

12.The respondents may file 4 complete sets containing along with the documents in a paper book form with the registry, within one month of the service of notice on him of the filing of the memorandum of appeal.

13.The respondents shall also endorse one copy of the reply to the appeal along with documents as mentioned in (7) above.

14.The Appellate Tribunal may in its discretion on application by the respondent allow, the filing of reply referred to in (7) above, after the expiry of the period referred to therein.

WORKING OF CIVIL COURTS IN DEBT RECOVERY CASES

Cases for recovery of debts can also be filed in normal Civil Courts, i.e., District Courts, High Courts and the Supreme Court.The powers given to the Debt Recovery Tribunals & the Appellate Tribunals are more or less similar to the civil courts, although the processes may differ. Civil courts can be more time consuming when compared to Debt recovery tribunals due to the sheer number of other cases that a civil court has to handle as compared to a debt recovery tribunal & appellate tribunal.

BANK OF BARODA CASE STUDYMohid Constructions Case:-M/s Mohid Construction Co. was sanctioned funded credit facilities by Bank of Baroda, aggregating Rs.750/- Lacs on 16.04.04 by the then general manager (greater Mumbai zone). Credit facilities were granted for construction under Slum Rehabilitation Development Scheme. Under the project, on one part, building was to be constructed for slum dwellers and on second part the promoters were allowed to use commercial site mohid heights for construction sale.Units of slum dwellers have been completed by the firm and possession has been handed over to the inhabitants.Construction at mohid heights is in progress. Slab work up to 21st floor has been completed. Delay in completion of said project was due to delay in receiving permission from SRA.M/s Mohid EntertainmentProprietary concern. Established in August 1998.

ObjectiveTo function as a sports centre.Bowling Alley, Billiards Pool Tables, Video Centre, Refreshment Centre

Location2nd & 3rd floor of Mohid Heights7440 sq. feet area (per floor)

ProprietorMr. Zahir Abdul Mohid (also proprietor of Mohid Construction Company)

ProblemsProject never took off. Couldnt generate sufficient funds to cover operating expenses. Incurred huge losses.

MeasuresEntertainment centre was leased out to Galaxy Entertainment Corporation Ltd., multinational company based at Mumbai.Leased on monthly rental basis & MOU signed.

MOU agreement details & problemsMohid Entertainment was to get Rs. 25 Lacs as down payment on signing of MOU and monthly lease rental of Rs. 6 Lacs from Galaxy Entertainment Corp. ltd.

Only Rs. 15 Lacs received as down payment on pretext that firm needed Rs. 10 lacs for refurbishment and other miscellaneous expenses.

Monthly release rentals were to be received after deduction of TDS. However Lease rentals were not coming in as per agreed terms. Galaxy entertainment corp. was deducting many expenses as there was shortfall for recovering EMI.

Mohid entertainment assured branch to sort out dispute with galaxy entertainment corp. & requested for some time.Bank had released charge/mortgaged of 2nd Floor of Mohid Heights on their making payment of Rs. 5 crores towards two a/cs.

For Mohid Construction Company

Parameters2003-2004 (Rs. In Lacs)2004-2005 (Rs. In Lacs)

Sales360.1970.75

Net Profit27.76(-)2.23

Bank Interest provided in P&L A/C0.810.01

Proprietors Capital114.35(-)176.19

Present Status of the Project *(Mohid Heights)

StatusApplication submitted for construction of additional floors 22nd, 23rd & 24th floor. Due to further delays likely to take place, this has been scrapped. Additional FSI will be utilized by constructing additional toilet and balcony in each flat and additional bed-room in either flat no. 2 or 3 on each floor.

Security CoverageAll property mortgaged to us is situated in same building, i.e. Mohid Heights.Flats are situated from floors 5th to 21st floor. Commercial space is situated at floor 2nd & 3rd.

ParticularsAmt. (Rs. In Lacs)

Valuation of 3rd floor of Mohid Heights @ Rs. 11000/- per sq. ft. super built up as per valuation report of M/s Asmita Consultants dated 09.05.2007800.00

Valuation of 15 unsold flats in Mohid Heights @ Rs. 3250/- per sq. ft. super built up as per valuation report of M/s Asmita Consultants dated 09.05.2007527.57

Total1327.57

Reasons for Requests / Justifications

1. To status review of following credit facilities for a period of -6- months on existing terms and conditions:-

Nature of facilitiesExisting limitProposed limitO/S as on 15.05.08OverduesInt. applied up to

M/s Mohid Construction Co.

600.00203.46203.46203.4608.07.06

Overdraft150.0095.3295.3295.3231.05.06

Total750.00298.78298.78298.78-

2. To authorize Andheri (West) branch to charge simple interest 2 BPLR from the date of cessation of interest as mentioned in last column of above table as against rate of interest applicable 3% (OD) & 3.75% (Term Loan) over BPLR:-

Within One monthRs. 100.00 lacs

Within 2nd MonthRs. 100.00 Lacs

Within 3rd MonthRs. 98.78 Lacs

Simple Int. @ BPLR within 4th MonthRs. 136.19 Lacs (Approx.)

* M/s Mohid Construction group has made payment of Rs. 5 Crores/- during the period 13.08.07 to 05.09.07 & charge on 2nd floor of Mohid Heights is released.Rs. 217.32 lacs are credited in M/s Mohid Entertainment & account is fully settled. Balance amount of Rs. 282.68 lacs are credited in M/s Mohid Construction Co.They wanted to give 2nd & 3rd floor of Mohid Heights on rental basis or on some franchise arrangement but the same have not materialized & both floors are lying vacant.

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