PROJECT REPORT ON

“DRT AND ITS PROCEDURE”

IN PARTIAL FULFILLMENT FOR THE REQUIREMENTS OF THE COURSE BA.
LLB (HONS.) IN THE SUBJECT OF

BUSINESS LAW

Submitted to - Submitted by -
Prof. (Dr.) Neha Dewan Vikrant
University Institute of Legal Studies Roll no: 147/20 (Sem.-8)

Panjab University, Chandigarh B.A LLB (Sec-C)

UILS, PU, Chandigarh

UNIVERSITY INSTITUTE OF LEGAL STUIDES, PANJAB UNIVERSITY, CHANDIGARH

 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and assistance
from many people and I am extremely fortunate to have got this all along the completion
of my project report. Whatever I have done is only due to such guidance and I would never
forget to thank them.

I take this opportunity to record deep sense of gratitude to my teacher ,Prof. Neha Dewan,
University Institute of Legal studies, Panjab University, Chandigarh for her incontestably
perfect unmatched guidance, encouragement, valuable suggestions and efforts made
during the preparation of this project and during her lectures which enabled me to
complete this project successfully on the topic,

“DRT AND ITS PROCEDURE”

I owe my regards to the entire faculty of the University Institute of Legal Studies,
Chandigarh from where I have learnt the basics of Business Law and whose informal
discussions, intellectual support helped me in the entire duration of this work.
 INTRODUCTION

In India commercial banking has been the hub of the financial system and has played an
important role in economic development. Apart from performing the key-functions of
providing liquidity and payment services to the real sector and managing financial
intermediation process, the banking industry has been able to provide major credits to all
sections of economy. Banking has been termed ‘growth facilitators’ with introduction of
concept of ‘global village’. The face of commercial bank has changed a lot and that too
radically. Efficiency in management of liability has been call of the day. With induction of
private Banks, sellers market has changed to buyers market. It was recognized at an early
stage of reform that the weak banking system would not be able to withstand the pressures of
liberalization in their current state. The legislation bringing about qualitative improvement in
the Banks and supporting financial infrastructure in order to change the environment of
recovery where needed. It is noticeable that prior to the enactment of RDDB Act , the normal
remedy for recovery of debts due to Banks and Financial Institutions was to institute a suit in
Civil Court which was tried and decided in accordance with the procedure laid down in Civil
Procedure Code 1908. The decree passed by the Civil Courts was also executed in
accordance with the procedure contained in Order XXI thereof. The procedure of suit was a
long and a cumbersome process. Often it took years and decades to recover the amount. The
position was that a civil suit took five years to fifteen years for adjudication of liability or for
getting a judgment. After such a long period spent in adjudication of liability there was
considerable difficulty at the time of execution for recovery of loan amount or for sale of
goods/property.1

Institutions face considerable difficulties in recovery of dues and enforcement of

securities charged to them due to delays in legal processes. A significant portion of their
FUNDS are thus blocked in unproductive assets, the values of which deteriorate over time.
Banks and financial institutions also spend substantial amounts on legal charges, which add
to their overheads. In the Indian legal system, the evolution of the legal framework did not
keep pace with changing commercial practices and financial sector reforms. The previous
procedure for recovery of debts due to banks and financial institutions resulted in a
significant portion of the FUNDS being blocked. Therefore, an urgent need was felt to work

1
G.S.Dubey, An Introduction to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993,
<http://www.manupatra.co.in/newsline/articles/Upload/6FDEB5C4-14EF-48ED-B223-19A4003D8410>
out a suitable mechanism through which sums due to the banks and financial institutions
could be realized without undue delay. 2

Recovery of Debts Due To Banks and Financial Institution Act, 1993

In India, banks and financial institutions had been required to institute a suit in civil court to
proceed with recovery. The suit was tried and decided in accordance with the procedure laid
down in Civil Procedure Code (CPC), 1908. The CPC resolution process was long and
cumbersome. In 1981, a committee under the Chairmanship of Mr. T. Tiwari was formed to
suggest reforms. The committee observed that the Indian civil court system was burdened
with diverse types of cases. Thus, recovery of dues due to banks and financial institutions
was often not given priority. The committee suggested other modes to recover such dues. One
measure was to set up quasi-judicial bodies to deal exclusively with the recovery process of
the financial sector. These bodies could follow a faster “summary proceedings” process for
disposing of cases. However, actual action on the formation of such bodies was not initiated
until about a decade later around the Indian financial market and economic liberalization. 3

In 1991, the Committee on the Financial System headed by Shri M. Narasimham

(Narasimham Committee I) endorsed the views of the Tiwari Committee and recommended
setting up Special Tribunals. As backdrop for this recommendation, the committee noted the
workload on the court system due to defaults. As of 30th September 1990, more than 1.5
million cases filed by the public sector banks and 304 cases filed by the financial institutions
were pending in various courts. The recovery of debts involved more than 5,622 crore owed
to public sector banks and ` 391 crores to other financial institutions. The Narasimham
committee recommendations led to the enactment of the Recovery of Debts Due to Banks and
Financial Institutions Act (RDDBFI), 1993. The Act established two types of agencies, Debt
Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) and conferred
upon them special powers for adjudication of debt recovery matters. Thus, the earliest
establishment of DRTs as institutional entities to resolve bankruptcy occurred in 1993. The
first DRT was formed in Calcutta (now Kolkata) on 27th April 1994. 4

AUTHORITIES UNDER RDDBFI ACT

2
<http://ijra.in/uploads/42148.3481418866Sanket%20Gupta%20&%20Shantanu%20Singh%20KhangarotFullpa
per>
3
<http://www.cafral.org.in/sfControl/content/Speech/462016115856AM-
Phadnis_Prabhala_Paper_Mar_2015>
4
Ibid.
Debt Recovery Tribunal

Section 3, provides for the establishment of Debt Recovery Tribunal (DRT), by notification
to be issued by the Central Government, for exercising, jurisdiction, powers, and authority
conferred on such tribunal under the RDDBFI Act. First DRT was established in Kolkata in
the year 1994. Presently 33 DRTs are functioning at various places in India, and 6 more
DRTs are also being established. As per section 4, DRT consists of sole member only, known
as Presiding Officer. Section 5, provides that a person who has been or is qualified to become
District Judge can be appointed as Presiding Office of DRT. Section 6 provides that the terms
of the Presiding Office shall end after the expiry of the period of 5 years from the date he
enters the office and he will be eligible for reappointment provided he has not attained the
age of 65 years.5

Debt Recovery Appellate Tribunal

Sections 8 -11 deals with the establishment, qualification, and term of the Chair Person of the
Debt Recovery Appellate Tribunal (DRAT). DRAT is established to exercise control and
powers conferred under the RDDBFI Act. DRAT consist of sole member to be known as
Chair Person. A person is eligible to become a Chair Person, if he has been an or qualified to
become a High Court Judge, or has been a member of the Indian Legal Services and held a
Grade 1 post as such member for the minimum period of three years or has held office of
Presiding Officer of Tribunal for period of at least three years. The Chair Person of DRAT
can hold his office for the period of five years and is also eligible for reappointment,
provided, that he has not attained the age of seventy years. Presently there are 5 DRATs in
India in Delhi, Chennai, Mumbai, Allahabad, and Kolkata. DRAT has appellate and
supervisory jurisdiction over DRTs.6

Delhi High Court in Cofex Exports Ltd. vs. Canara Bank7 opined that Debt Recovery
Tribunal is not a court but is a Tribunal having been created by a statute vested with a special
jurisdiction to try only applications by banks or financial institutions to recover any debt.
Although having regard to the provisions contained in clauses (a) to (b) of sub-section (2) of
Section 22 of the Act it had all the trappings of a court but it was held not to be a court as

5
<https://blog.ipleaders.in/recovery-of-money-under-the-recovery-of-debts-due-to-banks-and-financial-
institution-act-1993/>
6
Ibid.
7
AIR 1997 Delhi 355
such. It was held by the Supreme Court in the judgment of Ranjan Chemicals Ltd8 that a
court has the power in an appropriate case to transfer a suit for being tried by the DRT.9

PROCEDURE OF TRIBUNALS

The entire process of the tribunal starts with an application in the prescribed format to be
made by the concerned bank/financial institution. An Application has to be filed within the
local jurisdiction of relevant DRT, as per section 19(1) of the Act, Application can be filed
within the local limit of DRT in whose jurisdiction where:

1. the branch or any other office of the bank or financial institution is maintaining an
account in which debt claimed is outstanding;

2. the defendant voluntarily resides or carries on his business or works for gain;

3. in case there are more than one defendant, at the place where any one of the
defendants voluntarily resides or carries on his business or works for gain;

4. Where the cause of action wholly or partly arose.

Further, where a bank or a financial institution, which has to recover its debt from any
person, has filed an original application and against the same person another bank or financial
institution also has claim to recover its debt, then, the later bank or financial institution may
join the applicant bank or financial institution at any stage of the proceedings, before the final
order is passed, by making an application to that DRT.

In HDFC Bank v/s St. John's education trust10 it was held in no court have jurisdiction to
entertain any suit or proceeding in respect of any matter which a DRT or the appellate
tribunal is empowered by / under its act to determine & no injunction shall be granted by any
court or other authority in respect of any action taken or in pursuance of any power conferred
under the act. The DRT provides efficacious alternative remedy inclusive of the remedy
sought in this suit. When there is a statutory bar of civil court & alternative forum provides
remedy efficacious & adequate suit has to be rejected for want of jurisdiction.

8
State bank of India v. Ranjan chemicals ltd. And anr (2007) 1 SCC 97
9
<http://jlsr.thelawbrigade.com/wp-content/uploads/2016/06/Nidhi-Ritika> pm
10
(CS) Com no 55 of 2021 LA no: 531 of 2021.
 11
In Phoenix Arc Private Ltd v/s Vishwa Vidya Mandir & ors the High Court overlooked
the settled law that the HC will ordinarily not entertain a petition u/s 226 of the constitution if
an effective remedy is available to the aggrieved person and that this rule applies with greater
rigour in matters involving recovery of taxes, cess fees and other types of public money and
dues of banks & financial institutions. In petitions dealing with petition involving challenge
to the action taken for recovery of the public dues. The HC must keep in mind that legislative
enacted by parliament & state legislature for recovery of such dues or a code until themselves
in as much as they not only contain comprehensive traders for recovery of the dues with also
envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved
person.

Application contents

Along with the Application certified true copies of the documents on which the bank or
financial institution is relying in support of its claim needs to be filed. Further, Applicant
inter-alia should state the following:

1. Grounds of an application under different heads should be stated concisely;

2. Particulars of debt secured by a security interest in the property or assets belonging to

the debtor and estimated value thereof;

3. If the secured assets are not sufficient to cover the debt then the particulars of any
other property or assets owned by the debtor should be stated;

4. If the value of other assets is not sufficient to cover the debt, then a prayer must be
made requesting for direction to the debtor for disclosing his other property or assets
details.

Service of Summon

On receipt of application under sub-section (1) or sub-section (2), the Tribunal shall issue
summons with following directions to the defendant—

(i) to show cause within thirty days of the service of summons as to why relief prayed for
should not be granted;

11
Civil appeal no: 257-259 of 2022.
(ii) direct the defendant to disclose particulars of properties or assets other than properties and
assets specified by the applicant under clauses (a) and (b) of sub-section (3A); and

(iii) to restrain the defendant from dealing with or disposing of such assets and properties. 12

Hearing of the case before Presiding Officer

Filing of reply/written statement – Defendant/Respondent within one month from the date of
service of Notice/Summon on him is required to file the reply. However, with the permission
of DRT respondent/defendant can seek time for filing reply/written statement. Even if in the
extended time period the defendant/respondent failed to file his reply then DRT may precede
ex-party.13

The claim of set off– Defendant at the first date of hearing can file a claim for set
off/counterclaim. He cannot file it afterwards without the permission of DRT. The claim of
set off shall have the same effect as a counter suit in any proceedings. 14

Admission of liability by respondent/defendant – If the respondent/defendant admits his

liability, in that event Presiding Officer will pass an order directing respondent/defendant to
pay the admitted amount within the period of 30 days from the date of the order of the DRT.
If defendant/respondent fails to pay the admitted amount within that period, then Presiding
Office may issue a certificate of debt due in terms of section 19 of the Act.15

Interim Order by DRT - In cases where the applicant apprehends that the borrower may take
steps which may frustrate attempt of execution may make an application to DRT along with
details of property to be attached and value thereof, and on such application may pass an
interim order directing respondent/defendant, directing him to deposit before it amount
equivalent to property value or amount which may be sufficient to recover the debt or as and
when required by DRT to place before it disposal the property. 16

Wherever DRT finds it fit, it may also pass following orders under the Section 19(18):-

12
Section 19(4), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
13
Section 19(5)(i), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
14
Section 19(6), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
15
Section 19(5B), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
16
Section 19(12), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
 1. appoint a receiver of the property, before or after the grant of Recovery Certificate
(RC);

2. remove any persons from possession or custody of any property;

3. commit the same to custody, management of the receiver;

4. confer power on the receiver to file/defend the suit on behalf of property, or to act in
any manner for the improvement of the property;

5. appoint a commissioner for collecting details of defendant/respondent’s property or

sale thereof.17

Judgment and Recovery Certificate by DRT

DRT after giving both the parties opportunity of hearing and hearing their submissions will
within 30 days of the conclusion of such hearing pass its interim or final order. Within 15
days of the passing of the order, DRT will issue RC and forward the same to Recovery
Officer. RC will contain the details of the amount to be paid by recovered by the borrower
debtor. RC shall have the same effect as the decree of the civil court.

In Allahabad bank v/s Canara bank 18 it was observed that certificate of recovery is issued
against a company registered under company act the tribunal may order the sale proceeds of
such company to be distributed among secured creditors The court stated that Canara bank
does not belong to the class of secured creditors covered by section 529A(1)(b) companies
act therefore Canara bank cannot rely on the words in section 19(19) is to be distributed
among its secured creditors for claiming any amount lying in tribunal towards its security nor
can it claim priority against the Allahabad bank.

Appeal

An appeal by any aggrieved party against the order of DRT can be filed within the period of
30 days from the date of receipt of the order. No appeal can be filed against any order which
has been filed with the consent of the parties. DRAT shall endeavor to dispose-off appeal
finally within the period of six months. 19

17
Section 19(18), The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
18
(2000) 4 SCC 406
19
Section 20, The Recovery Of Debts Due To Banks And Financial Institution Act, 1993
Recovery of debt by Recovery Officer

After receipt of RC from DRT, Recovery Office will initiate recovery by one or more of
following modes:

1. Attachment and sale of movable or immovable property of defendants/debtors;

2. Taking possession of property over which security interest was created or any other
property of defendant/debtor and appointing receiver for the management of the same;

3. Arrest of defendant/debtor and his detention in prison;

4. Appointment of receiver for management of movable or immovable property of

defendant/debtor;

5. Any other mode as may be prescribed by the central government. 20

CONCLUSION

With the objective, therefore, of providing banks and financial institutions with a speedier
and more efficient mode of recovery of debts, the legislature has provided for the
establishment of special courts for the purpose, designating them as Debt Recovery
Tribunals. Lack of judicial training for recovery officers as they are officers appointed for
assisting the presiding officers, inconsistent procedures followed by different DRTs,
significant delay in proceedings as the recommended time is six months, whereas
proceedings actually last for two years or more, are some of the reasons for ill working of
DRTs. The functioning of DRTs needs to improve to ensure banks are able to recover their
existing loans and offer fresh advances at cheaper rates. In the current scheme, there is no
mechanism in place to ensure that the tribunal disposes the case in a timely manner. There is
a strong need to bring in more accountability for the DRT.

The functioning of DRTs is also keeping the Reserve Bank of India (RBI) worried.
If bankers cannot get their money back, they are not going to give loans at cheap price. So,
making sure debt recovery tribunals work better, making sure that we don’t have excess
number of stays, excess number of appeals – this is also needed to be focused. Finally, the

20
< https://blog.ipleaders.in/recovery-of-money-under-the-recovery-of-debts-due-to-banks-and-financial-
institution-act-1993/>
law should be strengthened to ensure mandatory time-bound disposal of cases. Also,
performance indicators of the adjudicating officer could be used to improve the efficiency of
the system. And, stay petitions should be analysed before being accepted as there have been
instances where advocates exploit the loopholes of the Act and plead for stays, leading to
piling up of cases.

BIBLIOGRAPHY

 The Recovery Of Debts And Bankruptcy Act, 1993 (Act 51 of 1991)

 Prof. Avtar Singh, Business Law ( Eastern Book Company, Lucknow, 4th edn., 2014)

 Kennan, Dennis, Business Law (Pitman Pub, London, 2nd edn., 1996)

 Moshal, Modern Business Law (Ane Books Pvt. Ltd., New Delhi, 3rd edn.,2009)

WEBLIOGRAPHY

 https://www.litem.in/debt-recovery-tribunal-drt.php

 https://www.indiafilings.com/learn/debt-recovery-tribunal/

 https://upload.indiacode.nic.in/showfile?actid=AC_CEN_2_33_00045_199351_1524
048948493&type=rule&filename=Debts%20Recovery%20Tribunal%20(Procedure)%
20Rules,%201993.pdf

 https://drt.etribunals.gov.in/edrt/user_manual.pdf

 https://debtindia.wordpress.com/debt-recovery-tribunals-drt-structure-and-processes/