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The Role of the Debt

Recovery Tribunal
By V. Niranjan / January 29, 2009 / 4 Min read / 4 comments

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 HOME
are two conflicting
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Supreme Court
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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.

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About the author

V. Niranjan
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ANONYMOUS
March 31, 2009 at 11:10 am

what is the situation of a borrower during the

arbitration proceedings when he executes an
agreement for availing personal loan, which
contains the arbitration clause in case of any
default and the arbitrator is to be appointed
by the bank, he cannot back out of the
agreement but he does not consent to the
arbitrator so appointed…so is he bound by the
agreement although he can challenge the
jurisdiction of arbitrator …what are the
grounds for dropping of the arbitration
proceedings if any.

Reply

ANONYMOUS
March 31, 2009 at 11:12 am

can a bank or any financial institution initiate

proceedings before any authority other than
DRT since RBT Act bars such
proceedings????

Reply

YOURSTUFFFREE
September 8, 2010 at 10:06 am

It set up under the Act be wound up and all

notices or orders or Recovery Certificates or
proceedings conducted by or issued by the
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said Tribunals be quashed.

Reply

DR.ALOK ,ADV.
December 7, 2015 at 4:01 am

Sir,
Problem is that the Banks sanctions the loans
without proper examinations of the
documents and properties and the concerned
officer/staff transferred or retires.The now
transferred officer/staff try to defend the ill
acts of their predasors. This resuls in delays.
DR.ALOK K. SHARMA, ADV., SUPREME
COURT OF INDIA

Reply

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