DEFAULT AND RECOVERY, RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993

This article is written by Jyoti Yadav od Army Institute of Law, an intern under Legal Vidhiya

INTRODUCTION

Banks and financial institutions are experiencing a significant Collection difficulties and foreclosures of securities of them. Debt collection procedures at banks and financing companies resulted in blocking of a significant portion of funds.   Financial Systems Committee considering appointment on special courts endowed with special powers to try such cases and fast recovery as essential elements for a successful implementation reforms of the financial sector. It was therefore urgent to develop specific mechanism through which loans to banks and financial institutions factories could be completed. 

In 1981 the Commission examined the legal issues and other difficulties that banks and financial institutions encounter and that are proposed countermeasures, including legislative changes. This committee also proposed Creation of special courts for the collection of bank loans e financial institutions using a simplified procedure. The recommendations of the above commission resulted in the introduction of the Recovery of Debts due to Bank and Financial Institutions Bill, 1993 which later was passed and came as the Recovery of Debts due to Bank and Financial Institutions Act, 1993 and then changed to the Recovery of Debts and Bankruptcy Act, 1993. It contains VI Chapters and 37 Sections.

BACKGROUND

The Financial Systems Committee, chaired by Shri M. Narasimham plans to set up special courts, special powers to decide cases and speedy recovery essential for the successful implementation of financial sector reforms. Therefore, there was an urgent need to develop a suitable mechanism, thanks to which it was possible to pay off the debts of banks and financial companies immediately. In 1981, a committee chaired by Shri T. Tiwari examined the legal and other difficulties faced by the banks financial institutions and proposed solutions, including changes correct. The Tiwari Committee has also proposed the establishment of a special committee Courts for the recovery of loans from banks and financial institutions pursuant to Act using a simplified procedure. Creation of Special Courts will only fill a long-standing need, but it will also be a milestone for the implementation of the report of the Narasimham Committee. While on 30^th Sept. 1990 more than 15,000 cases has been filed by the public sector. There were bank cases and about 304 financial institutions in progress different dishes, debt collection with more than Rs.5622 crores bounty public sector banks and around Rs 391 million in financial loans establishments. Many public funds are frozen litigation prevents proper use and money laundering for the development of countries. The bill aims to create a court and Courts of Appeal for expeditious sentencing and recovery of unpaid debts to banks and financial companies.

OBJECT OF THE ACT

The aim of the Act was to establish Tribunals for speedy adjudication and to recover debts as soon as possible from various banks and financial institutions.

MEANING OF BANK, DEBTS AND FINANCIAL INSTITUTION UNDER THE ACT

1. BANK

It is defined under section 2(d) of the RDDBFI Act. It means any:

• Banking company,
• Similar new bank,
• State Bank of India,
• Subsidiary bank, or
• Regional Rural Bank
• Multi-State-co-operative bank.[1]
• DEBTS

It is defined under section 2(g) of the Act and it means:

• any liability claimed as a due
• from any person
• by a bank or a financial institution
• or by a group of banks or financial institutions
• in the course of any business activity
• it can be secured or unsecured or assigned
• payable under a decree or order of any civil court or as any award of arbitration
• and which is legally recoverable.[2]
• FINANCIAL INSTITUTIONS

It is defined under 2(h) of the Act. It means:

• A public financial institution defined under section 4A of the Companies Act, 1956,
• A certificate of registration obtained by the securitization company or reconstruction company under section 3(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
• A trustee debenture which is registered with the Board and is appointed for secured debt securities,
• Other institutions as notified by the Central Government in this behalf.[3]

TRIBUNALS FOR DEFAULT AND RECOVERY

Chapter II of the Act provides for the establishment of Tribunal and Appellate Tribunal. It consists of following features:

TRIBUNAL

• A Debt Recovery Tribunal can be established by the Central Government under a notification to recover the debts. There is as such no limit regarding the number of such Tribunal to be established.[4]
• Such Tribunal shall be consisted of one member i.e., the Presiding Officer who is to be appointed by the Central Government.[5]
• For being appointed as a Presiding Officer of such Tribunal, the person should be qualified as a District Judge.[6]
• Term of such officer shall be 5 years or 65 years, whichever will be earlier.[7]
• Staff of such Tribunal will include Recovery Officers and other officers and employees.[8]
• All terms and conditions regarding salaries and allowances shall be as prescribed by the Central Government.[9]
• The Presiding Officer can anytime give a notice and resign from the office or he can be anytime removed by the Central Government after inquiry on the basis of proved misbehavior or incapacity.[10]

APPELLATE TRIBUNAL

• It is established by the Central Government and is known as Debt Recovery Appellate Tribunal.[11]
• It consists of one Chairperson only who shall be appointed by the Central Government.[12]
• Conditions for qualifying as a Chairperson of such Appellate Tribunal are:
• that he is qualified as a Judge of a High Court; or
• that he was at a post in Grade I of the Indian Legal Service for at least 3 years.; or
• that for 3 years he was at the post of the Presiding Officer of the Tribunal.[13]
• The term of the office of the Chairperson shall be 5 years or 70 years , whichever will be earlier.[14]
• All terms and conditions regarding salaries and allowances shall be as prescribed by the Central Government. [15]
• The Chairperson can anytime give a notice and resign from the office or he can be anytime removed by the Central Government after inquiry on the basis of proved misbehavior or incapacity.[16]

POWERS AND JURISDICTION OF THE TRIBUNAL WITH REGARD TO DEFAULT AND RECOVERY

Chapter III of the Act provides for the jurisdiction and powers exercised by the Tribunals. It contains following features:

• The Tribunal and the Appellate Tribunal shall have power to exercise all the power and authority in order to decide the applications for recovery of debts from the banks and financial institutions.[17]
• The power of superintendence and control shall be exercised by the Chairperson of the Appellate Tribunal over the Tribunals. If he feels that the Presiding Officer of the Tribunal is guilty of proved misbehavior or incapacity, he has the authority to submit report to the Central Government for the initiation of an inquiry.[18]
• The Chairperson also has the power to transfer a case from one Tribunal to another for disposal.[19]

PROCEDURE TO BE FOLLOWED BY THE TRIBUNALS

• An application can be made to a Tribunal by the banks and financial institutions for the recovery of debts from any person.[20]
• Two or more bank or financial institution can join together by making an application to the Tribunal if they have to recover debts from the same person.[21]
• Above applications shall be accompanied with the original copies of the documents and the prescribed fee.[22]
• Tribunal can issue summons after receiving the above applications mention in that he has to do present himself within 30 days.[23]
• The defendant after receiving the summon shall within the time frame of 30 days shall submit a written statement of his defence. However, such time period can be extended by the Presiding Officer.[24]
• After this a date of hearing shall be fixed by the Tribunal.[25]
• In case the defendant agrees that a debt is due to the applicant, he shall pay the same otherwise a counter-claim can be filed by him.[26]
• In case of a counter-claim the applicant can also file a written statement to answer the same.[27]
• The Tribunal has the power to attach the disputed property if he has a reason to believe that the defendant can remove or dispose of such property.[28]
• After all the procedure the Tribunal shall send to the applicant and defendant a copy of the final order and also the recovery certificate.[29]
• The aim of the Tribunal should be to end the proceedings in maximum 2 hearings and dispose it of within 180 days.[30]
• An aggrieved person shall within a period of 30 days can appeal to the Appellate Tribunal.[31]
• If an appeal is filed by a person who has not paid the due amount by him to the bank or financial institutions then firstly he has to submit fifty per cent of the due amount to the Tribunal and only then his appeal would be heard.[32]

METHODS  OF RECOVERY OF DEBT

Chapter V of the Act provides for the “Recovery of Debt Determined by Tribunal”. Section 25 specifically states that the recovery of the debts shall be done by the Recovery Officer after receiving the Certificate under section 19 and following methods or modes can be used for the recovery of the debts:

• Attachment and sale (of movable or immovable property),
• Appointment of receiver after taking possession of the property and then to sell it,
• Arrest and detention of the defendant in prison,
• Appointment of a receiver for managing such property,
• Other kind of mode as Central Government may prescribe.[33]

LANDMARK JUDGMENTS

1. Union of India v. Delhi Court Bar Association[34]

The court held that the prominent purpose behind establishing the Debt Recovery Tribunal is to recover debts which are due to the banks and financial institutions.

• Central Bank of India v. State of Kerela[35]

The hon’ble court in this case held that the aim of the pertinent Act  is to provide for a special kind of machinery which would be helpful in speedy recovery of debts which are due from the banks and financial institutions.

• Greater Bombay Coop. Bank Ltd. United Yarn Tex (P) Ltd.[36]

The court observed that the cooperative banks (as mentioned under the definition of banks) which are instituted under the State Cooperative Societies Acts or the Multi- State Cooperative Societies Act, 2002 would not fits under the 1993 Act.

• Gottumukkala Venkata Krishamraju v. Union of India[37]

It was held that earlier the term of office of the Presiding Officer was 5 years or 62 years of age but now it was amended to 5 years or 65 years of the age and thus the petitioner shall be covered under the later provision.

• Sandeep Singh Sandhu v. Debt Recovery Tribunal[38]

The court observed that the remedy provided under this Act is to file an appeal to the Appellate Tribunal within a period of 30 days. A revision petition under Article 227 of the Constitution of India cannot be filed.

• Kotak Mahindra Bank (P) Ltd. v. Ambuj A. Kasliwal[39]

In this case it was held that the limit of pre-deposit amount provided under section 21 of the Act can in no case shall be reduced to 25%, it is the lower limit and it shoul be deposited to the Tribunal while applying for appeal to the Appellate Tribunal.

• Pravin Gada v. Central Bank of India[40]

The court observed that a Debt Recovery Tribunal under section 25 of the Act has to give a notice to sell the property and only after hearing official liquidator who is appointed by the court, the property can be sold.

CONCLUSION

Therefore, the prominent object of the Act is to recover the debts from the banks and financial institutions. The Act has been amended several times to upgrade the provisions mentioned therein and providing for the new methods of recoveries of the due debts.

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[1] S. 2(d),  The Recovery of Debts and Bankruptcy Act, 1993.

[2] S. 2(g),  The Recovery of Debts and Bankruptcy Act, 1993.

[3] S. 2(h),  The Recovery of Debts and Bankruptcy Act, 1993.

[4] S. 3,  The Recovery of Debts and Bankruptcy Act, 1993.

[5] S. 4,  The Recovery of Debts and Bankruptcy Act, 1993.

[6] S. 5,  The Recovery of Debts and Bankruptcy Act, 1993.

[7] S. 6,  The Recovery of Debts and Bankruptcy Act, 1993.

[8] S. 7,  The Recovery of Debts and Bankruptcy Act, 1993.

[9] S. 13,  The Recovery of Debts and Bankruptcy Act, 1993.

[10] S. 15,  The Recovery of Debts and Bankruptcy Act, 1993.

[11] S. 8,  The Recovery of Debts and Bankruptcy Act, 1993.

[12] S. 9,  The Recovery of Debts and Bankruptcy Act, 1993.

[13] S. 10,  The Recovery of Debts and Bankruptcy Act, 1993.

[14] S. 11,  The Recovery of Debts and Bankruptcy Act, 1993.

[15] S. 13,  The Recovery of Debts and Bankruptcy Act, 1993.

[16] S. 15,  The Recovery of Debts and Bankruptcy Act, 1993.

[17] S. 17,  The Recovery of Debts and Bankruptcy Act, 1993.

[18] S. 17-A,  The Recovery of Debts and Bankruptcy Act, 1993.

[19] Ibid.

[20] S. 19, The Recovery of Debts and Bankruptcy Act, 1993.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Ibid.

[25] Ibid.

[26] Ibid.

[27] Ibid.

[28] Ibid.

[29] Ibid.

[30] Ibid.

[31] S. 20, The Recovery of Debts and Bankruptcy Act, 1993.

[32] S. 21, The Recovery of Debts and Bankruptcy Act, 1993.

[33] S. 25, The Recovery of Debts and Bankruptcy Act, 1993.

[34] Union of India v. Delhi Court Bar Association, 2002 (2) Supreme 435.

[35] Central Bank of India v. State of Kerela, (2009) 4 SCC 94.

[36] Greater Bombay Coop. Bank Ltd. United Yarn Tex (P) Ltd.

, (2007) 6 SCC 236.

[37] Gottumukkala Venkata Krishamraju v. Union of India, (2019) 17 SCC 590.

[38] Sandeep Singh Sandhu v. Debt Recovery Tribunal, (1999) 2 BC 556 (P&H).

[39] Kotak Mahindra Bank (P) Ltd. v. Ambuj A. Kasliwal, (2021) 3 SCC 549.

[40] Pravin Gada v. Central Bank of India, (2013) 2 SCC 101.