ROLE OFDEBT RECOVERY

In the recent past, several important questions have arisen with respect to
the role of the Debt Recovery Tribunal [“DRT]. Some of these have been
discussed on this blog. An interesting feature of the DRT is that only banks and
financial institutions are entitled to invoke its jurisdiction, while borrowers are not.
The question that arises in this context is whether borrowers are entitled to
approach civil courts independently

Section 17 of the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 [“RDB Act”] provides that the DRT shall have jurisdiction
to “entertain and decide applications from banks and financial institutions for
recovery of debts due to such banks and financial institutions”. ‘Debt’ is defined in
s. 2(g) as any liability which is claimed as due by a bank during the course of
business activity. Thus, the jurisdiction of the DRT extends not just to debts as
traditionally understood, but to any claim of money that a bank makes during the
course of business. S. 18 provides that no court except the Supreme Court and the
High Court under Art. 226 shall have any jurisdiction in relation to these matters.
In 1995, the constitutionality of the DRT was challenged successfully before the
Delhi High Court, which held that the Tribunal could not function validly since it
did not have any provision for filing counterclaims. Subsequently, the RDB Act
was amended and the constitutionality of the amended act was upheld by the
Supreme Court. As things stand, borrowers are entitled to file “counterclaims”
under s. 19 of the
RDB Act

The question is whether borrowers must choose this remedy or whether

they are also entitled to file an independent suit in the appropriate civil court.
There are two conflicting Supreme Court decisions on this point, and two others
which are ambiguous. In Indian Bank v. ABS Marine Products, (2006) 5 SCC 72,
Indian Bank asked for a suit filed by ABS Marine in the Calcutta High Court to be
transferred to the DRT. The Supreme Court held that such an independent suit
filed by a borrower could not be transferred to the DRT without his consent, since
his right to approach a civil court cannot be taken away. This decision raised fears
that the jurisdiction of the DRT could be easily evaded by a borrower filing an
independent suit in civil court asking for the exact opposite of what the Bank was
asking for in the DRT. In SBI v. Ranjan Chemicals Ltd., (2007) 1 SCC 97, the
Supreme Court held that its power to transfer a suit did not depend on the consent
of the parties. It is difficult to reconcile this decision with ABS Marine, especially
since the Court ordered the transfer of an independent suit on the ground that it
would avoid duplication of evidence, counsel, expenses etc. The concern that this
decision raised is that the DRT may be unable to handle suits which involve
complex questions of law or fact, and that the Bank could prevent a borrower from
approaching a civil court to resolve these questions by merely filing a claim in the
DRT. The DRT has summary proceedings and has traditionally been considered
ill-equipped to consider claims like misrepresentation or fraud, which require
cross-examination of witnesses. Other decisions of the Supreme Court do not
clarify this matter either, for one seems to support Ranjan Chemicals (Industrial
Investment Bank of India v. Marshal’s Power and Telecom, (2007) 1 SCC 106)
while another seems to favour ABS Marine (Raghunath Rai Bareja v. Punjab
National Bank, (2007) 2 SCC 230). Thus, the law on the point is unclear.

This dispute has important implications for the role of the DRT in Indian
law and commerce, and the ability of the borrowers to have legitimate disputes
adjudicated by the civil court. Equally important, however, is ensuring that the
objective of setting up the
DRT – expeditious disposal of banking cases – is not hampered by allowing
borrowers to frustrate its jurisdiction…