Analysis: Recovery of Debts Due to Banks and Financial Industry Act, 1993

Introduction:

Human tendency of speed, which is taking money faster than repaying for it. From childhood until now, I have gone through various institutions such as schools & colleges (finance department), banks, gyms, etc usually are speedy in receiving money. But when there is duty associated with them in giving money, they usually delay or sometimes refuse. Although, these examples are irrelevant to the topic but are indirectly relevant, How? In all of this, one common trait is humans love money and spending it uselessly.

Economics suggests to every common person that wealth should not be kept ideal rather it should be invested into something. If anyone doesn’t follow, it will deteroit the economic health of our country by inflation, a decrease in the value of currency, and many more. Debtors are not repaying money and interest in time. Banks usually get fed up in tracking them daily. Finally, these debtors flew up somewhere else. Banks later found that the assets of the debtor to recover is much lesser than the loan amount. This is because of less vigilance of banks, corruption, any other masterplans in between debtors or any third party.

RBI is a central bank and regulates all banks, financial institutions and non-banking financial institutions. Banks such as PNB, Yes Bank, ICICI, SBI suffered huge losses due to money defaulters. It hampers the interests of genuine borrowers and common people.^[1]

During 1996, the amount in suit file cases accounts for 26.21% of the bank’s NPA and later increased to 33.91% and 46.38% in 1997 & 98 respectively.^[2]

Many tendencies of such defaulter cases occurred in India, the civil and fast track courts couldn’t cope up with the increasing no. So, the RDDBFI act was adopted in the view that the recovery of money from defaulters can be done in legal ways.

Abbreviations

1. RDDBFI – Recovery of Debts Due to Banks and Financial Institutions.
2. B&FI – Banks and Financial Institutions.
3. SC – Supreme Court.
4. HC – High Court.
5. GOI – Government of India.

Rationale Behind this Act

BEFORE enacting this law, the government in 1981 formed a committee and its head M.T.Tiwari suggested a quasi-judicial setup which deals exclusively with banks and financial institutions matters and enact a procedure which fastens the hearings of recovery cases. On 30th September 1990, more than 15 lakh cases were pending which involved 304 cases filed in the recovery of debts of net worth Rs. 5622 crores.^[3] Mr. Narasimhan upheld the view of the committee and the bill is pass by both houses and got the presidential assent on 27th August, 1993.

Structure and Important Sections

This act doesn’t entertain the recovery matters which are less than 10 lakh rupees.

DRT (Debts Recovery Tribunal) was establish and if either one of the parties feels that judgment is unanimous or require to challenge such, then one can appeal within 45 days to DRAT (Debts Recovery Appellate Tribunal) which overviews and gives final judgment to the case. There are 33 DRTs and 5 DRATs in India to adjudicate over matters prescribed in this act. Section 2(g)^[4] defines the meaning of debt – liability which is claim due to banks or by consortium of banks or financial institutions. It secures payable of debt under a decree or civil order or arbitration or mortgage and promotes legal recoverability on the date of application.

Chapter III of the act provides jurisdiction, powers and authorities – The tribunal entertains and decides the applications of B&FI.^[5] No courts (except SC & HC) can intervene and exercise its powers.^[6] Any person if wanted to file a suit or objection or complaint has to approach the DRT not the civil court. Civil courts have no jurisdiction on these matters.^[7] The SC court held that the company court has no jurisdiction to take matters which are pending before DRT and it should be performed “under four corners of the RDDBFI Act.”^[8] SC in another case also held that the proceedings of DRT cannot be transferred or stayed for company court.^[9]

Debts Recovery Tribunal

1. It is compose of only one person which will be appoint by notification. He will be presiding officer of the tribunal and has to be qualified to be or is or has been a district judge. I think such appointment of district judges to become presiding officers is not alone capable, instead, an expert team of the financial sector should be appoint and adjudicate.
2. Also, under this act, recovery officers and other employees are appoint for tribunal.
3. Since appointment of presiding officer is by the central government and u/s. 16 it cannot be question. Appointment of Presiding officer is done by a political body i.e., Central Government. I think it is itself an unjust idea. Appointments should be carry out by some sort of examination to secure and serve the better quality of justice for parties (here, banks and defaulters or creditors).
4. u/s. 19, the stepwise procedure for application to tribunal is explain. The cross suit or written statement of the plaintiff and defendant should be heard and the tribunal will give final order. In its sub-section (18), the orders or decisions shall be pass by tribunal, when the proceedings are found just and convenient.
5. u/s. 24, the provisions of limitation act, 1963 will be applicable to an application made to a Tribunal. 

Debts Recovery Appellate Tribunal  

1. It shall consist only one person i.e., chairperson and he shall be appointed by the central government by notification. The qualification of this seat is unless the person –
   • is /or has/ or is qualified for high court judge.
   • Has been a member of Indian legal service and held a post in Grade I at least for three years.
   • Has held the presiding officer of tribunal for at least 3 years.

Satisfaction of any one of the above conditions makes the person eligible for chairperson. I agree with this arrangement but still I think the addition of an expert panel of the financial sector makes the smooth functioning of this appellate tribunal.

2. Similarly appointment of chairperson for DRT cannot be questioned. Same suggestion of mine for this fallacy.
3. DRAT has to dispose of the case with their side of judgment within six months of the date of receipt of appeal.
4. Both DRT and DRAT is empowered with the same functions of civil court under the Code of Civil Procedure Act, 1908

In both tribunals, S.23 says that B&FI who files a suit, may authorize one or more legal practitioners for presenting their side of the case. And, S.23(2) says the defendant may appear in person or authorize legal practitioners for presenting their side of the case.

u/s. 33, it says that no suit, prosecution shall lie against the central government or staff of DRT & DRAT for anything done in good faith under this act. I personally think the act is trying to defend future corrupt practices. An officer can misuse his seat and prove that action is done in good faith. It is difficult to interpret the meaning of “good faith” intended by lawmakers at that time.

Recovery Officer

1. The presiding officer shall issue a certificate to the recovery officer to recover the amount of debts. In this procedure, the presiding officer if he thinks he needs to correct any clerical or arithmetical mistake, he should intimate the recovery officer regarding the same. 
2. The procedure or mode of recovery is mentioned in S.25 & S.28 of act.
3. If any party is aggrieved with the actions/duties of the recovery officer, he has to appeal within 30 days from date of order.

Constitutional Validity

In the landmark case of Union of India & Anr. v. Delhi High Court Bar Association & ors.^[10],this act was challenged on ground that it violates article 14 of constitution. Also, it was not in purview of Articles 323A & 323B of the Constitution, and the expression “administration of justice.” The decision of the High Court further held that modes of recovery u/s 25 & u/s.28(1),(2) is non arbitrary, unreasonable and without any guidelines, control, etc. Also, it erodes the independence of the judiciary. But SC rejected the said decision given by HC and reversed it. SC in justification said that the S.25 & S.28 of the act was not bad for law. Also, the act satisfies all necessary conditions for tribunal as prescribed under article 323B of the constitution.

The one big thing I observed was that the act was challenged after a long nine years from its date of enactment.

Conclusion

Throughout this research we came to know why this act has to emerge. How it functions and critical analysis of this act. There should be judicial and economical training or workshops provided for recovery officers. As these bodies are appointed by GOI, there might be a huge possibility of biasness and unusual orders of presiding officers. There should be more concrete or established procedures in order to bring more accountability in DRTs and DRATs. Like SEBI was adopted to look after unfair practices in virtual stock markets, RDDFI was adopted to look after the debtors and recovery of money holded with them.

The idea is nice, but there must be focus on its implementation. If the recovery officer fails in its duties, banks would be left with no option to increase their stocks in nifty banks and increase the rate of interest on loans. Thus, RBI and the economy can be halted. I think there should be more no. of DRTs and DRATs to cope up with increasing no. of B&FI cases.

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References:

^[1] Deepak Singh, RDDBFI, Taxguru (Feb 20, 2020), https://taxguru.in/income-tax/recovery-debts-due-t-banks-financial-institutions-act-1993-important-facts.html.

^[2] Study group report from www. rbi.gov.in.

^[3] The Financial Institutions Act, 1993, Objects & Reasons.

^[4] The Financial Institution Act, 1993, Section 2(g).

^[5] See, The Financial Institution Act, 1993, Section 17.

^[6] The Financial Institution Act, 1993, Section 18.

^[7] Jagdish Singh v. Heeralal, (2014) 1 SCC 479.

^[8] Official Liquidator, U.P. and Uttarakhand v. Allahabad Bank, AIR 2013 SC 1832.

^[9] Allahabad Bank v. Canara Bank, (2000) 101 Comp. Cas. 64 (SC)

^[10] Union of India & Anr. v. Delhi High Court Bar Association & ors, (2002) 4 SCC 275