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Debt recovery through DRT proceedings

Debt recovery through DRT proceedings


The DRTs function under the provisions of the Recovery of Debts Due to Banks and Financial Institutions(RDDBFI) Act, 1993 and as per the Debts Recovery Tribunal (Procedure) Rules, 1993. The Banks and financial institutions  may approach the Debts Recovery Tribunal (DRT) for recovery of the dues from any person provided  the amount of debt due to bank or financial institution or to a consortium of banks is more  than 10 lakhs rupees or such other amount, being not less than 1 lakh rupees, as the Central Government may, by notification, specify.There is no upper monetary ceiling for filing application with DRT for interim order. Whereas, under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 borrowers, guarantors, and any other person aggrieved by the actions of the bank may also approach the Debts Recovery Tribunal (DRT) for redressal.
DRT Proceedings: The bank would file application before the tribunal seeking interim order for recovery of its due. The DRT sends notice to the defendants (Bank borrower/s) to show cause within 30 days, why action   should not be taken against them to recover Bank’s dues. If notice could not be served for any reason, even after one or two summons, DRT would publish the notice against the defendants in the newspapers.

The DRT would pass exparte order if the defendants do not appear before the Tribunal at the time and date mentioned in the notice served to them. In case the defendants appear before the Tribunal and file reply statement through their advocate, wherever necessary an interim order will be passed by DRT. The applicant bank is required to file proof affidavit and loan documents and statements of account at DRT.

Passing of orders by DRT: The procedure of passing of orders by DRT is similar to proceedings taking place in any other court of law. There will be cross examination of Bank Manager and defendants/ defendant’s witness by opposite side lawyers.  The written arguments will also be submitted by both applicant bank’s and defendant’s counsels. After perusal of arguments submitted by opposite counsels, DRT passes order on merit of the case.

Application for ‘Recovery Certificate’ and appointment of Recovery Officer: On receipt of order in its favour, the bank would files application with DRT for Recovery Certificate. The DRT issues Recovery certificate and endorses the same to Recovery Officer.

Action by Recovery Officer: The Recovery Officer issue notice to the defaulter/s and demands them to clear the dues as per Recovery Certificate issued by DRT, within 15 days from the date of notice. Recovery Officer attaches the property of the defaulters on default of payment within the notice period. The attached property would be auctioned after due notice and publication in two newspapers (one in vernacular language) and bank’s dues are recovered from the sale proceeds of the attached property.

Action for recovery of balance amount: If there is shortfall in recovery, Bank may identify the other properties of the defendants for recovery of balance amount. The Recovery Officer would proceed against such identified properties on the basis of request made by the Bank.

Closing of DRT application: Application made by the bank for recovery will be recovered by Recovery Officer after full recovery of Bank’s dues.

RDBBFI amendment 2016  though the amendments are yet to be enforced.
The RDBBFI amendment 2016 allows banks to file cases in DRTs having jurisdiction over the area of bank branch where the debt is pending, instead in the DRT which have jurisdiction over the defendant’s area of residence or business. Further,  the borrowers will have to deposit at least 25% of the outstanding amounts with the debt recovery appellate tribunal (DRAT) under the DRT Act to avail an appeal. Previously, this provision was required only under the SARFAESI Act.

Related article:

What are the strategies used for reducing NPA?

(10) Comments

  1. Deepa

    Hi, can you please provide good information about things that banks do after loan account become npa like what are diff steps b preventive measures that bank step in into. Thankyou.

    1. Surendra NaikSurendra Naik - Post author

      Deepaji, You may read the following article: What are the strategies used for reducing NPA? https://www.bankingschool.co.in/loans-and-advances/strategies-for-reducing-npa/

    1. Surendra NaikSurendra Naik - Post author

      Regular visit to borrower's unit/house and pursue the borrower to repay or bring some social pressure, claiming DICGC/ECGC guarantee are the common mode of recovery process used by the bankers. If borrower wants some concession for one time settlement, recovery through award of Lok Adalat is the easiest and fastest mode of recovery as an Alternative Disputes Redressal Mechanism’. For more details I'm sharing here below link https://www.bankingschool.co.in/loans-and-advances/strategies-for-reducing-npa/

  2. Ravi Verma

    If a business has undergone into losses due to market condition or due to risk taken by management which can be witnessed by the books in record, what kind of relief Bank can extend to the borrowers in repayment of loan which NPA since last 1 Year. Can a borrower expects the waiver off interest since the date of NPA and reschedule the repayment program for another 24 months. Please also advise if Bank does not accept the request of borrower and issue Notice of 13(4) borrower has an option to go to DRT sekking relief

    1. Surendra NaikSurendra Naik - Post author

      When a borrower makes huge profit because of business plan and execution, he won't share profit earned by him with the bank except the actual interest payable on loan amount. Therefore, no logic in demanding waiver of interest if the entity incurs loss in the business. The borrower may at the most request for rephasement of loan extension of repayment period. Bank may agree to sacrifice the interest in full or part if it realses that the borrower does not have any assets to liquidate the loan or the sale value of collateral is not sufficent to cover the principal and interest.

  3. aneesh

    Dear Sir, I m contemplating about purchasing sarfaesi property going to be auctioned by PSU bank. Kindly guide me on the due diligence to be followed. Further i have already obtained attested copy of LSR and documents from Bank(including 30years encumbrance) ,My panel advocate and valuation engineer inspected the property and have given the approval. I shall be grateful if could give me the reply at the earliest. thanking you in anticipation.

    1. Surendra NaikSurendra Naik - Post author

      In some cases, the original owner (borrower/guarantor) of the property will move to High Court and bring stay order on transfer of property to the buyer of the property through auction. You need to be careful as you have already paid the money to the bank which will not be returned till the Court decides the matter.

  4. Navin

    Hell Sir, I have purchased a flat in Chennai Moulivakkam. One of the tower which the builder constructed collapsed due to bad construction and it took lot of lives as. Lot of labour’s who were inside the construction building died due to building collapse. The government declared the Building is not safe and they gave order to demolish other tower as well. I had bought a flat in that tower which was demolished by the government under safety norms. I had taken a loan though Sbi bank and they cleared the loan based on my income and they charged for legal and site for evaluation and both these reports were cleared and the loan got approved. I had to stop paying the emi as the building got collapsed and I had lost 55 lacs if money and 33 lacs which I birrwo d from bank,. Bank has issued a DRT notice which did not come In my favour and judgement was also not in my favour. Nike the DRT has issued a recovery notice to pay the loan amount with the interest. Please advice how do I deal with this situation . We have almost 50 + buyers who are affected due to this have lost our money and doesn’t have the flat I hand.

    1. Surendra NaikSurendra Naik - Post author

      Consult a good lawyer and sue the builder to recover your financial loss. All the 50+ can jointly sue the builder and attach his assets if any. The banks are also in a precarious position, although the judgment was in their favour, as they cannot take possession of the property mortgaged to them (property is non-existent). You can also discuss with the lawyer about other legal recourses available to you like approaching the appellate court or High Court for relief against DRT judgment.

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