Recovery of Debts Due to Banks and Financial Institutions Act: An Overview

Loan facilities are made available to both legal companies and private persons by banks and financial institutions that are properly registered with the Reserve Bank of India (RBI) (borrowers). Banks and financial institutions can collect the debt by contacting the proper legal channels in the event that the borrower fails to repay the loan amount or any portion thereof, including unpaid interest and other penalties, and/or the debt becomes a Non-Performing Asset (NPA). Prior to the passage of the RDDBFI Act, banks and financial institutions encountered significant difficulties in recouping loans from borrowers because the courts were inundated with numerous normal cases and could not give the banks' and financial institutions' recovery cases priority.

Objective of the Act

Under the RDB Act of 1993, the Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) were created specifically to provide quick adjudication and recovery of debts owed to banks and financial institutions.

Provisions under the Act

The following provisions are −

Provisions	Chapters	Content
Section 1- Section 2	I	Preliminary
Section 3 – Section 16	II	Establishment of tribunal and appellate tribunal
Section 17- Section 18	III	Jurisdiction, powers and authority of tribunals
Section 19 - Section 24	IV	Procedure of tribunals
Section 25 – Section 30	V	Recovery of debt determined by tribunal
Section 31 - Section 37	VI	Miscellaneous

Authorities under the Act

There are basically two kinds of authorities i.e.

Debt Recovery Tribunal

In accordance with Section 3 of the RDDBFI Act, the Debt Recovery Tribunal (DRT) must be established by notice from the Central Government for the purpose of carrying out the jurisdiction, powers, and authority granted to such tribunal.

Debt Recovery Appellate Tribunal

The formation, qualification, and tenure of the Chair Person of the Debt Recovery Appellate Tribunal are covered in Sections 8 through 11. (DRAT). DRAT was created to carry out the control and authority granted under the RDDBFI Act. DRAT only has one member, who will be the chairperson. A person who has served as or is qualified to serve as a High Court judge, who has been a member of the Indian Legal Services and held a Grade 1 post as such member for at least three years, or who has served as the Presiding Officer of the Tribunal for at least three years, is eligible to become a chairperson. The DRAT Chairperson can serve in that capacity for a term of five years and is eligible for reappointment as long as he is under the age of 70.

Types of Applications and Petitions that are Often Submitted to DRT

Following are the pleadings which are filed in DRT by the parties −

• An Original Application (O.A.) is a claim made against a borrower by a bank or other financial institution.

• Interlocutory Applications (I.A.) are claims made while the case is still pending. Applications submitted in accordance with clauses e, g, or h of section 22(2) of the RDDBFI Act are referred to as "Miscellaneous Interlocutory Applications" (Misc. I.A.).

• The borrower's defense is discussed in the written statement or response.

Amendment in 2016

On June 24, 2006, the government approved the "Recovery of Debts Due to Banks and Financial Institutions Act, 1993" to address these issues and offer banks and financial institutions an advantage against debtors. In the years 1995, 2000, 2003, and 2013, the law was changed. 2016 saw yet another amendment to the Act.

The main features of the amendment are

• Financial leasing, conditional sales (like hire buy), and transactions involving intangible assets incorporated into definitions of property and security interests are the main features of the 2016 Act.

• Asset reconstruction firms and debenture trustees were included in the definitions of "financial institutions" and "secured creditors."

• The DRT Act was modified to include obligations related to debt securities and security interests.

• You may appeal a DRT order before the DRAT with a 50% pre-deposit as opposed to a 75% before.

• It is recommended that the DRT Act's presiding officer serve as an adjudicating authority under the 2016 Insolvency and Bankruptcy Code.

• The DRAT Chair will also serve as the Insolvency Code's Appellate Authority. The Act's primary goal is to create Tribunals for the swift adjudication and collection of debts owed to banks and financial institutions. Act now applies to all of India.

Conclusion

The DRT Act is a framework that banks and other financial institutions can use to quickly recover their debts from dishonest borrowers. Application submission and DRT judgments are subject to limitations. The most significant aspect of this DRT Act is its overriding impact, which prevents Civil Courts from hearing any cases that come under DTR's purview.

Frequently asked Questions

Q1. How can debts owed to banks and other financial entities be recovered?

Ans. Recovery of such loans, which are almost untraceable by banks through regular legal channels is a very task and it takes too much times. Therefore, to regularize it and make a strict rule against the defaulter, on June 24, 2006, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act, 1993) has been legislated by the government.

Q2. Whether a decree-holder can recover the suit amount under the RDDBFI Act?

Ans. Yes. Where a decree or order was passed by any court before the commencement of the Recovery of Debts Due to Banks and Financial Institution (Amendment) Act, 2000 and has not yet been executed, then, the decree-holder may apply to the Tribunal to pass an order for recovery of the amount.

Q3. Is the RDDBFI Act in conflict with the SARFAESI Act?

Ans. No. In Transcore Vs. UOI (2008) it was held that RDDBFI Act, 2016 and SARFAESI Act are complementary to each other.

Q4. What is the language of the Debt Recovery Tribunal?

Ans. The proceedings of the Tribunal shall be conducted in either English or Hindi.

Q5. Is Recovery of Debts Due to banks and Financial Institutions Act applicable to whole India?

Ans. Yes, recovery of Debts due to Banks and Financial Institutions Act, is applicable to whole India.