Context: 

Debt recovery tribunals are overloaded with cases, around 2.15 lakh pending before the tribunal.

• Out of 2.15 lakh cases, 
  • Recovery of Debt and Bankruptcy Act: Around 1.6 lakh cases are pending.
  • SARFASI Act: Almost 53,000 cases are registered

Background of Debt Recovery Tribunals

• Challenges of Bad Loans: Non-performing assets and bad loans cause a lot of trouble for banks in India. This became so severe before 1993, that civil courts used to take more than a year to solve these cases.
• RDDBFI Act 1993: In response to the crisis, Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act was enacted in 1993 , leading to the establishment of the Debt Recovery Tribunals (DRTs).
• SARFASI Act 2002: To smoothen the function of DRTs, an act known as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFASI) Act was passed in 2002.

What Are Debt Recovery Tribunals?

• Intro: Debt Recovery Tribunals are quasi-judicial bodies set up under section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 to adjudicate and recover debts due to banks and financial institutions.
• Composition: It consists of the Presiding Officer qualified to work as a District Judge. 
• Tenure: He is appointed for a tenure of 5 years by the central government and can hold office till the age of 65 years. Recovery officers may be appointed to assist him.
• Jurisdiction: Section 18 of the RDDBFI act bars all other courts apart from the Supreme and High courts from adjudicating matters relating to debt recovery. 
  • In other words, the High Court or Supreme Court can only pursue relief against the order passed by the DRAT.

• Objective of Debt Recovery Tribunals

  • To provide a speedy and expensive forum for banks and Financial Institutions to recover their dues from borrowers who have defaulted on their loans. 
• Appeals: Appeals against the orders passed by DRTs lie before the Debts Recovery Appellate Tribunals (DRAT).
• Total DRT and DRATs: 39 Debt Recovery Tribunals (DRTs) and 5 Debt Recovery Appellate Tribunals (DRATs) are functioning nationwide. A presiding officer and a chairperson respectively head each DRT and DRAT.
• Operational Limit: In 2017, DRTs were empowered to handle cases with claims of Rs 10 lakh or more. In 2018, this limit was raised to Rs 20 lakh, aiming to reduce the pendency of cases and enhance efficiency.

Functions of Debt Recovery Tribunals

• To adjudicate and recover debts due to banks and Financial institutions.
  • Within 6 months, it has to resolve the claim.
  • Within 45 days of the judgement, an appeal against the order of the DRT can be made in the DRAT.
• To enforce security interests created in favour of banks and financial institutions.
• To pass orders for the sale of secured assets of borrowers.
• To pass orders for the arrest and detention of borrowers in certain cases.
• DRTs are empowered to examine their own decisions. 

Benefits of Debt Recovery Tribunals

• Speedy disposal of cases: DRTs are mandated to dispose of cases within six months from the application filing date.
  • Normal Applications: 180 days is the standard timeframe for DRTs to resolve cases filed through the “normal application” route.
  • Securitisation Applications: DRT aims to resolve the cases from 60 days to 4 months if the cases are registered under the SARFASI act.
• Inexpensive forum: The fees charged by DRTs are significantly lower than those charged by regular courts.
• Specialised forum: DRTs have expertise in dealing with cases involving the recovery of debts from borrowers.

Issues with Debt Recovery Tribunals

• Limited Jurisdiction: Debt Recovery Tribunals only have jurisdiction to deal with cases involving the recovery of debts from borrowers who have taken loans of more than Rs 20 lakh.
• No Power to Grant Injunctions: DRTs cannot grant injunctions to restrain borrowers from disposing of their assets.
• Limited Scope of Appeals: Appeals from orders of DRTs can only be made to the Debt Recovery Appellate Tribunals (DRATs).

Corrective Measures With Debt Recovery Tribunals

• To improve the issues persisting with Debt recovery tribunals, amendments were made to the RDDBFI Act in 2016. They are as follows:
  • Increased retirement age: The act raised the retirement age of presiding officers from 62 to 65 years. Additionally, it allowed for reappointment, promoting continuity and experience within the DRT system.
  • Mandatory asset disclosure: The act required borrowers to disclose details of their collateralized assets, facilitating faster and more efficient recovery proceedings.
  • Depositing 75% of outstanding debt: Defaulting borrowers must deposit 75% of outstanding debt while appealing to DRAT. It addresses concerns about delaying tactics some borrowers who file protracted appeals employ.

Conclusion

Debt recovery tribunals (DRTs) are crucial in India’s financial landscape and their continued improvement is crucial for maintaining a healthy financial ecosystem.

News Source: NDTV