Debt recovery management & Role of Debt Recovery Tribunal in banking sector

Debt recovery management and Role of DRT (debt recovery tribunal) in banking sector


The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) provides speedy redressed to lenders and borrowers through filing of Original Applications (OAs) in Debts Recovery Tribunals (DRTs) and appeals in Debts Recovery Appellate Tribunals (DRATs). The sales are complete when you receive your sales proceeds, but what if sale proceeds remain outstanding or your debtor refuses to pay for credit sales. In such cases, it becomes a nightmare for an organization. This nightmare is further intensified when management needs to provide explanation every year for outstanding debtors published in your financial statements. Nowadays Debt Recovery has become the main constraint for the growth. Being the requirement of competitive business scenario, you can’t afford to avoid the sales on credit or advances. Bank customers expect their banker to provide them with loan and advance to make up for their fund; also the ability for Bank to maintain adequate profitable credit policy and debts recovery technique is always maintained. Debt credit control department is not the center for banks and as such, they are mainly to charge with responsibility of making proper use of the shareholders fund for the benefit of the entire public at large.


Debt is an amount of cash borrowed by one person from another. Debt is used by way of many agencies like corporations and also individuals as an approach of making massive purchases that they can also wish to no longer have the cash for under each day circumstances. A debt affiliation gives the borrowing get collectively permission to borrow cash underneath the circumstance that it is to be paid back at a later date, generally with interest.

What is Debt recovery management?

An organisation or company that is in the business of improving cash that is owed on delinquent accounts. Many debt collectors are hired through companies/Banks to whom money is owed with the aid of debtors, working for a charge or for a percentage of the complete quantity collected. Some debt collectors are debt buyers; these agencies purchase debt at a fraction of its face value and then strive to get better the full amount of the debt.

Debt recovery management in banks

Debt from a loan, deposit line or accounts receivable that is recovered both in entire and in part after it has been written off or categorized as a bad debt. The recovery of outstanding loans generally advanced with the aid of banks to character debtors or corporate entities used to be a large issue, till the DRTs were established and mostly decided the increase of the monetary sector of the country. The Government revenues have been getting impacted to the extent that the growth of the economic system had slowed down. Banks and FIIS shied away from advancing loans as recovery of the loans was once the biggest task they faced. The most vital step to increase the economic system used to be to have a progressive and essential machine and mechanism to get better the dues from borrowers.

Therefore, the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (RDDB&FI Act) was enacted. This Act finds its origins in the Tiwari Committee Report which was drafted after the formation of the Narasimham Committee I, in the year 1992. The Committee recommended setting up a quasi-judicial body to deal with recovery of amounts advanced as loans by Banks. The reason for this recommendation was the Civil courts were too over burdened with other type of recovery claims that banks claims failed to get any importance and resulted in long periods of litigation with no immediate effects or recoveries coming through .

Hence this Act was as soon as enacted to cover all debts owed to banks and FIs (financial institutions) in extra of Rs10 lakh and the jurisdiction of civil courts on debts over these cases ceased to exist. The civil courts have been directed to hand over all such instances to Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs), constituted beneath the Act. As on date there are 33 DRTs and 5 DRATs in the country and its inception the DRT and DRAT have a large role to play in Debt Recovery.

Engagement of Recovery Agency

The Bank might also utilize the offerings of recovery groups for collection of dues and repossession of securities. Recovery corporations will be appointed as per regulatory guidelines issued in this regard. The title and address all Recovery Agencies on the Bank’s accepted panel will be placed on the Bank’s website for information. Only recovery agencies from the permitted panels will be engaged by using the Bank. Employees of the recovery agencies, after completing the obligatory Debt Recovery Agent (DRA) training, will be issued legitimate ID cards authorizing them to collect dues from the Bank’s customers.

In case the Bank engages provider of such recovery/enforcement/ seizure corporations for any recovery case, the identification of the agency will be disclosed to the borrower. • The recovery agents engaged via the Bank will be required to comply with a code of conduct governing their dealings with customers.

Recovery Acts

I. Debt Recovery Tribunal (DRT) Act 1993
II. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SAFFAESI) Act, 2002.

I Debt recovery tribunal (DRT) act 1993

The Debts Recovery Tribunal has been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to receive claim applications from Banks and Financial Institutions towards their defaulting borrowers. But quickly DRT saw some draw back cause being When it got here to massive and powerful debtors, Primarily on the ground that their claims towards the lenders had been pending in the civil courts (even now, extra than 70,000 instances pending with drts), If the debt recovery tribunal have been adjudicate the depend and auction off their residences irreparable injury would take place to them. As if these were not sufficient, there was clash of jurisdiction between the Official Liquidators appointed by the High Courts and the Recovery Officers of the Debts Recovery Tribunals.

II The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SAFFAESI) Act, 2002.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the Sarfaesi Act) is an Indian law .It allows banks and other financial institution to auction residential or commercial properties to recover loans. The SARFAESI Act provides for the manner for enforcement of security interests by way of a secured creditor besides the intervention of a court or tribunal. Once a loan is declared as non-performing asset, Bank can take moves under SARFAESI act, to get better the mortgage money.

Role of the debt recovery tribunal (DRT)

The DRTs essential object and role used to be to recover all outstanding loans due to banks and monetary institutions. The Tribunal’s power is limited to try and settle cases for recovery of loans and amounts from NPAs (nonperforming assets) as classified via the banks under the RBI guidelines. The Tribunal had all the power of a district Court and tried all pending cases with the District court under the Act which constituted it, Viz the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (RDDB&FI ) The Tribunal followed the same procedure of issuing summons, summoning of witnesses, Evidence leading and Argument before final Judgment. The Tribunal also has a Recovery officer who helps in executing the recovery Certificates as passed by the Presiding Officers.

Thus the DRT followed the efficient legal procedure emphasizing speedy disposal of the cases and fast implementation of the final order. This system of fast trial for recovery by means of the DRT was once much appreciated vis a vis the scene prior to 1994, where Debt Recovery concerned submitting a legal suit in the civil court where the banks cited the particulars of the case and then the court directed the borrower to pay the money to the banks. If the loan was unsecured the bank sought to liquidate the association assets and distribute the proceeds from the liquidation among all the creditors, depending on the priority of the claim. On the contrary, if mortgage was secured the court would implement its security interest by permitting the sale of collateral, so that the financial institution recovered their dues. But going by using the way the civil methods advanced it would take years for a bank to get better their dues. With the establishment of DRT the technique for recovery of dues was once faster as compared to the Civil Court. But later this was hampered because many borrowers started cross litigating that their claims were pending at civil courts and that all recovery should be stalled.

In addition, the biggest challenge faced was a conflict of jurisdiction among the Official Liquidators appointed by the High Courts and the Recovery Officers of the Debts Recovery Tribunals. The Official Liquidator, being an officer of a higher rank, took into possession all the properties, which actually belonged to secured creditors already before the Debts Recovery Tribunal, thereby resulting in a deadlock, which on some occasions still remains to be resolved.

Powers of debt recovery tribunal (DRT)

1) Summoning and enforcing the attendance of any person and examining him on oath;
2) Requiring the discovery and production of documents;
3) Receiving evidence on affidavits;
4) Issuing commissions for the examination of witnesses or documents;
5) Reviewing its decisions;
6) Dismissing an application for default or deciding it ex-parte.
7) Make interim order by way of injunction, stay or attachment against the defendant to debar from transferring, alienating or otherwise dealing with the property or asset without permission of tribunal.
8) Direct the defendants to provide security sufficient to satisfy the debt.


The Debts Recovery Tribunals carried out well and helped the Banks and Financial Institutions recover drastically large components of their non-performing assets and bad debts. Further, the DRTs triggered an increase in state-level bank lending, as Banks depended on that there is a mechanism in area to recover the dues. Nevertheless, interest rate arose after the DRTs were established and all problems for deposit enlargement have been resolved. Although, clashes are inevitable the DRT has helped the Banks and financial sectors get better big amounts of loans, which formerly would take years to get better on account of the long civil procedures. With the enactment of the SARFAESI Act, 2002 (The Securitization and Reconstruction of Financial Assets and enforcement of security interest act, 2002) it has become possible to ensure speedy recovery and instill confidence to the borrower that they would be heard fairly especially when the borrower has got a very good track-record / relation with the Bank apart from having valuable and marketable security pledged to the Bank. The only possible remedy to the Banks and Fis to avoid clashes is do a complete due diligence before advancing loans to borrowers viz. title search, residence verification etc. However, there is no dispute to the fact that is it Public Sector or Private Sector Banking DRT is the forum for speedy recovery of debts.

Author: twinkle shah,
Navrachana University, 5th year BBA-LLB student

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