ABSTRACT
The effectiveness of any financial system is heavily reliant on the efficient recovery of debts. In India, the Debt Recovery Tribunals (DRTs) were established under the Recovery of Debts and Bankruptcy Act, 1993 (formerly RDDBFI Act) to expedite the process of resolving debt-related disputes, particularly those involving banks and financial institutions. Over time, however, jurisdictional conflicts between DRTs and other forums such as civil courts, High Courts, National Company Law Tribunal (NCLT), and consumer forums have raised concerns regarding overlapping powers and procedural delays.
This research undertakes a comparative legal analysis of the DRTs with other relevant judicial and quasi-judicial forums, focusing on the extent of their powers, procedural mandates, and the constitutional challenges arising from jurisdictional overlaps. The study explores landmark judgments that have interpreted the scope of DRT’s authority, legislative amendments aimed at streamlining adjudication, and practical issues of forum shopping, conflicting decisions, and delayed justice.
The paper also highlights the inefficiencies and ambiguities in the statutory framework that give rise to such jurisdictional conflicts and suggests reforms to harmonize the working of DRTs with other dispute resolution bodies. The study ultimately aims to promote judicial clarity, expedited debt recovery, and the protection of stakeholder rights in financial litigations.
Keywords
Debt Recovery Tribunal (DRT), Jurisdictional Conflict, Financial Dispute Resolution, NCLT, Civil Courts, Forum Shopping, RDDBFI Act, SARFAESI Act, Judicial Reforms, Debt Recovery.
INTRODUCTION
Debt Recovery Tribunals (DRTs) play a crucial role in the financial system by ensuring the efficient resolution of disputes related to loan defaults and debt recovery. Established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), DRTs were created to provide an alternative to overburdened civil courts, facilitating a faster and more specialized resolution process.
Over the years, their jurisdiction has expanded with the introduction of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, granting financial institutions greater powers in recovering bad debts. However, a significant challenge arises when the jurisdiction of DRTs overlaps with other legal forums, such as civil courts, National Company Law Tribunal (NCLT), and High Courts. The Insolvency and Bankruptcy Code (IBC), 2016, has further complicated the legal landscape, leading to conflicts between DRT proceedings and corporate insolvency processes. Questions regarding the priority of claims, enforcement rights, and procedural hierarchies have resulted in legal ambiguities and delays.[1]
This study aims to conduct a comparative analysis of the jurisdictional scope of DRTs and other judicial bodies, examining conflicts, landmark judgments, and potential reforms. Strengthening jurisdictional clarity is essential to enhance efficiency and avoid procedural redundancies in debt recovery mechanisms.
Financial institutions, particularly banks, have been notoriously challenging to pursue for the collection and enforcement of securities claims. A significant portion of the funds was immobilized due to the protracted duration required for banks and other financial institutions to recover their capital.
The creation of “special tribunals” with sole jurisdiction to arbitrate and swiftly restore such assets was considered essential for the successful implementation of banking sector reforms by the Committee on banking Systems, chaired by Shri M. Narasimhan. Obligations to banks and other entities required timely settlement; hence, an appropriate mechanism was deemed necessary. Shri T. Tiwari led a team that examined the legal challenges and other issues encountered by financial institutions in 1981. The committee proposed amendments to the legislation. The Tiwari Committee recommended the establishment of specialized tribunals to expedite the recovery of loans from banks and other financial entities. This resulted in the enactment of the DRT Act, which denotes the Recovery of Debts Due to Banks and Financial Institutions Act of 1993. The Indian government has established thirty-three Debt Recovery Tribunals and five Debt Recovery Appellate Tribunals across the country to aid financial institutions in the effective recovery of bad debts in alignment with worldwide trends. The Debts Recovery Tribunal (DRT) is designed to ensure compliance with the RRDDBFI Act of 1993 and the SARFAESI Act of 2002, which pertain to the recovery of debts owing to banks and financial institutions. Goal: The Act of 1993 primarily aimed to establish specialized tribunals for adjudicating conflicts involving banks and financial organizations, rather than utilizing conventional courts. The stated objective of the Act was to accelerate the adjudication of issues concerning banks and financial institutions within its jurisdiction. The Tiwari Committee stated in their report defending the Act that “civil courts are encumbered with various types of cases.” The primary function of civil courts is not the collection of debts owing to financial institutions such as banks. Like other litigants, financial entities such as banks must allocate an excessive amount of resources to recovery actions in civil courts. [2]
The Act’s preamble stipulates the establishment of courts for the expeditious resolution and recovery of loans from banks and other financial institutions, as well as connected concerns. Credit unions and other financial institutions may file complaints pursuant to the RDBFI Act of 1993. Under the SARFAESI Act of 2002, creditors, guarantors, and any individuals who believe they have been wronged by a bank may file a complaint with the Debts Recovery Tribunal (DRT). An appeal can be lodged with the Debts Recovery Appellate Tribunal (DRAT) against a ruling issued by the Debts Recovery Tribunal (DRT). An officer is designated to oversee each Debts Recovery Tribunal (DRT). Only the Presiding Officer of a Debt Recovery Tribunal possesses the legal ability to adjudicate cases and render decisions. It is customary to assign two Recovery Officers to each Debt Recovery Tribunal.
[1]Arundeep Singh and N.S. Toor, Credit Risk Management – A Practical Approach (1st edn, Skylark Publication, New Delhi 2002).
[2] S.C. Kuchhal and Suchitra Mittal, Corporation Finance – Principles and Problems (24th edn, Chaitanya Publishing House, Allahabad 2005).