ABSTRACT
The financial sector is the backbone of any economy, and the efficient recovery of debts plays a crucial role in maintaining its stability and growth. In India, the increasing volume of non-performing assets (NPAs) and delayed legal proceedings in civil courts necessitated the establishment of specialized forums for speedy resolution of financial disputes. The Debt Recovery Tribunals (DRTs), constituted under the Recovery of Debts and Bankruptcy Act, 1993, aim to provide a focused and time-bound mechanism for the recovery of debts due to banks and financial institutions.
This dissertation explores the role of DRTs in accelerating the process of debt recovery and reducing the burden on civil courts. It critically examines the legislative framework, jurisdictional powers, and procedural efficiency of the DRTs. The study also evaluates the impact of various amendments and landmark judgments on the functioning of DRTs, particularly in light of the Insolvency and Bankruptcy Code, 2016. By analyzing statistical data, case studies, and judicial pronouncements, the research assesses whether DRTs have succeeded in fulfilling their mandate of speedy adjudication.
The study concludes by identifying the systemic challenges faced by DRTs, such as inadequate infrastructure, lack of manpower, and procedural delays, and suggests practical reforms for enhancing their effectiveness. Ultimately, the paper underscores the importance of strengthening DRTs as a vital tool for ensuring financial discipline and reinforcing creditor confidence in India’s debt recovery framework.
Keywords: Debt Recovery Tribunals (DRTs), Financial Disputes, Non-Performing Assets (NPAs), RDDBFI Act, SARFAESI Act, Speedy Recovery, Banking Law, Institutional Reforms, Judicial Efficiency, Creditor Rights.
INTRODUCTION
The efficient recovery of debts is crucial for maintaining financial stability and ensuring the smooth functioning of banking and financial institutions. In India, Debt Recovery Tribunals (DRTs) were established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to provide a specialized forum for expediting financial dispute resolution. Prior to their establishment, debt recovery cases were handled by civil courts, which led to prolonged litigation and delays in enforcing financial claims.
DRTs have significantly improved the efficiency of debt recovery by providing a streamlined adjudication process with limited procedural complexities. These tribunals have jurisdiction over cases involving banks and financial institutions where the claimed amount exceeds a specified threshold. Additionally, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, has further empowered financial institutions by allowing them to recover non-performing assets (NPAs) without court intervention.Despite their advantages, DRTs face several challenges, including procedural backlogs, inadequate infrastructure, and delays in enforcement. This study examines the role of DRTs in ensuring the speedy resolution of financial disputes, evaluates their effectiveness, and explores potential reforms to enhance their functioning. Strengthening these tribunals is essential for fostering a robust and efficient financial dispute resolution mechanism in India. Natural resources and human capital that are not yet fully used define an underdeveloped economy. There may be certain socioeconomic elements at play here that hinder the ever-changing dynamics of the economy, scientific progress, or technological advancement, all of which contribute to the current predicament. However, India is now on the path to full development after overcoming its economic underdevelopment. In such a situation, efforts are made to overcome the economy’s static inertia by mass mobilisation, legislation, promoting a savings attitude, boosting trade, guaranteeing financial stability, passing new rules, and effectively enforcing them. [1]
Money circulates in what is often called the dynamic economy, much like the water cycle in nature. Like the hydrological cycle, the cash-flow mechanism involves public deposits, the generation of bank credit, the financing of debt, and the collection of debt. The government of India is actively promoting industry, agro-research, infrastructure development, employment opportunities, and GDP growth as a means of promoting the country internationally. Thus, it is essential that all individuals and businesses have access to and are competent with financial resources.
Therefore, development cannot proceed without recouping debt and finances, particularly when proposing an all-encompassing plan. India relies heavily on banking as a source of capital for both individuals and businesses looking to expand. Although there are other sources of funding in India, such as insurance companies, cooperative and regional rural banks, non-banking institutions, and financial corporations, the majority of the country’s funding comes from banks. People in India tend to feel more comfortable and secure when they borrow money, particularly from nationalised banks. Nationalised banks that are controlled by the government and monitored by the Reserve Bank are proven to be more reliable sources of financial assistance.
To assist financial institutions in recovering their bad debts quickly and effectively, the Indian government established 33 Debt Recovery Tribunals (henceforth referred to as the “DRT”) and 5 Debt Recovery Appellate Tribunals (henceforth referred to as the “DRAT”) nationwide, in line with global trends. The practice of lending and borrowing money dates back thousands of years. Ever since humans began trading goods and services, the idea of a bank has been around.
There has been a shift in the financial system since then. This century is home to large, respectable banks that have amassed assets of more than $1 trillion. Credit, another name for the banking industry, is king in the global economy. Economic growth is impossible to achieve in the absence of a strong credit system. A flourishing economy cannot exist without an active financial system. The rising tide of non-performing assets, or “NPAs,” is a major risk to India’s banking sector’s capacity to remain in business in the future. It has taken a long time for civil courts to resolve and collect debts owed by banks. Because the bank was unable to advance crores of rupees in legal proceedings, the government was forced to establish a Debt Recovery Tribunal to ensure rapid recovery procedures and timely adjudication of issues pertaining to bank debt collection. Prior to the establishment of DRTs, debt recovery proceedings were handled by regular civil courts in the same way as any other civil action. Court trials frequently lasted more than fifteen years. The litigation’s detrimental effect on the financial stability of the banks—caused by the involvement of some of the stressed assets—put the economy on a delayed development track. The Debt Recovery Tribunals (DRTs) were established as a consequence of the recommendations made by the Tiwari Committee, which was chaired by Shri. T. Tiwari, with the objective of creating Special Tribunals to speed up the process of debt recovery.
The Recovery of Debts Due to Banks and Financial Institutions Act of 1993 has led to the creation and announcement of regulations. Similar to civil courts, the Debt Recovery Tribunals can issue broad injunctions. Any dispute including a set-off, cross-suit, or counterclaim can be heard by the Tribunal. But they won’t consider the lenders’ claims of criminal carelessness, breach of contract, damages, or subpar service. Debt Recovery Tribunal powers include, but are not limited to, reviewing previous decisions, issuing ex parte and ad interim orders, and hearing appeals from parties against orders issued by its Recovery Officers. The statute grants exclusive authority to the Presiding Officer to hear and decide cases before a Debt Recovery Tribunal.[2]
To expedite the settlement and recovery of debts due to financial entities, such as banks, Debt Recovery Tribunals (DRTs) were initially set up. Debt Resolution Tribunals (DRTs) ceased when it came to powerful, significant debtors who might halt the process for various reasons, such as ongoing civil court proceedings. At first, they did a great job and helped lenders collect a lot of bad debt. The DRT would suffer permanent injury if they decided to sell their houses and settle the matter while other legal proceedings were continuing.
The SARFAESI Act of 2002, which deals with the securitisation, reconstruction, and enforcement of security interests, is another statute that DRT carries out. To expeditiously recoup their debts, financial institutions like banks now have the authority to confiscate and sell secured assets thanks to the SARFAESI Act of 2002, which aims to strengthen creditors’ rights through foreclosure and securities enforcement. The Debt Recovery Tribunals, however, are presently dealing with a large backlog of cases. Despite the fact that many had previously been set up, by 2016 there were 500 billion DRTs. Financial institutions like banks had a hard time recovering credits and executing the securities that were allegedly theirs. The Recovery of Debts Due to Banks and Financial Institutions Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act are the two separate statutes over which the Debts Recovery Tribunal now has authority. Both Acts aim to accomplish the same thing, but they do it in different ways. Within the limited parameters of the two statutes, the Debts Recovery Tribunal has been tasked with handling exceedingly intricate company restrictions. The Debt Recovery Tribunals are now highly regarded, very competent organisations that have evolved over the years. Debt Recovery Tribunals now have the authority to decide cases independently, thanks to a string of rulings from the Supreme Court and other high courts. Settlements, withdrawals, and compromises outside of court have shown to be the most effective methods of dispute resolution in these courts. Prolonged delays plague cases in both the district court and the high court. There may be a variety of opinions among lawyers, but everyone agrees that flaws in the system contribute significantly to its inefficiency.
[1] M.L. Tannan, Banking Law and Practice in India (20th edn, reprint 2004, Indian Law House, New Delhi) 275.
[2] Justice M. Rama Jois, Legal and Constitutional History of India (Reprint edn, Universal Law Publishing Co. Pvt. Ltd., Delhi 2009).