Debt Recovery Tribunal & SARFAESI

The Debts Recovery Tribunal was established under the Recovery of Debts and Bankruptcy Act, 1993 to give banks and financial institutions a dedicated forum for recovery. Three decades on, DRT work sits at the intersection of three regimes — the RDB Act, the SARFAESI Act and the Insolvency and Bankruptcy Code — and the interaction between them now determines the outcome of most substantial matters.

The firm acts for lenders and for borrowers and guarantors before the Delhi Debts Recovery Tribunals and the Debts Recovery Appellate Tribunal. Acting on both sides is deliberate: it is difficult to anticipate how a bank will enforce without having conducted enforcement, and equally difficult to advise a bank on the challenges it will face without having brought them.

For Banks and Financial Institutions

  • Original applications under the RDB Act for recovery of dues, and applications for recovery certificates
  • Attachment before judgment under Section 19(13) — where the Tribunal is satisfied that the defendant is about to dispose of or remove property, or to damage it or create third-party interests, with intent to obstruct or delay execution, it may require security under Section 19(13)(A) and order attachment under Section 19(13)(B). Conditional attachment may be directed under Section 19(15). Section 19(16) provides that an attachment made without complying with Section 19(13) is void, which makes the procedure a matter of substance and not of form
  • Appointment of a receiver under Section 19(18), and execution against the assets of the borrower and the guarantors
  • Defending counterclaims and set-offs raised by borrowers
  • Appeals before the DRAT and, where a question of law arises, in the High Court
  • Sequencing DRT recovery with SARFAESI enforcement and with proceedings under the Insolvency and Bankruptcy Code against the same borrower

For Borrowers and Guarantors

  • Securitisation applications under Section 17 of the SARFAESI Act, 2002 challenging measures taken under Section 13(4) — possession notices, sale notices, auction and physical possession
  • Counterclaims and set-offs against the lender where excess or unilateral interest, wrongful charges, mis-selling or breach of the sanction terms is alleged
  • Defence of personal guarantors impleaded in recovery proceedings, and advice on the separate exposure of a personal guarantor under the Insolvency and Bankruptcy Code
  • Applications for stay and for restoration of possession, and appeals to the DRAT

SARFAESI — The Timeline Is the Case

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 permits a secured creditor to enforce security without the intervention of a court — demand under Section 13(2), objections and the lender’s reply under Section 13(3A), and measures under Section 13(4) including possession and sale. Those powers are conditional on the prescribed procedure, and departures are challengeable.

A securitisation application under Section 17 must be made within forty-five days of the measure complained of.  That period is short and it is not readily extended. A borrower who receives a possession notice or learns of an auction and waits to see what happens will frequently find the right to challenge has gone before the first consultation. Advice should be taken on the day the notice is received.

Where DRT, SARFAESI and the Insolvency Code Meet

Where the borrower is a corporate person, a lender may pursue recovery before the DRT, enforcement under SARFAESI, and a corporate insolvency resolution process before the NCLT. These do not run independently. On admission of a CIRP the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 operates to stay proceedings against the corporate debtor and prohibits enforcement of security interest over its assets. The resolution or liquidation of the borrower then determines what the secured creditor can realise and how.

The firm’s practice covers both the DRT and the NCLT and NCLAT, which means the strategy across the forums can be set as one strategy. That is more than a convenience: a step taken in one forum routinely forecloses an option in another, and the sequence is usually more consequential than the merits of any individual application.

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What is the minimum amount for a DRT application?

The RDB Act does not apply where the debt due to a bank or financial institution is less than ₹20 lakh, the amount specified by notification in September 2018. Claims below that threshold are pursued before the ordinary civil courts or, where applicable, the commercial courts.

Forty-five days from the date of the measure complained of, under Section 17 of the SARFAESI Act. The application lies to the Debts Recovery Tribunal.

A sale may be challenged before the Tribunal on grounds including material irregularity in the valuation or in the conduct of the sale, inadequate notice, or failure to follow the prescribed procedure, subject to the forty-five day period and to the statutory requirements as to deposit where applicable. Whether a sale that has been confirmed and a certificate issued can be set aside depends on the nature of the irregularity and on the position of the auction purchaser.

 

 

If the borrower is a corporate person and a corporate insolvency resolution process is admitted by the NCLT, the moratorium under Section 14 of the Insolvency and Bankruptcy Code stays proceedings against the corporate debtor. Proceedings against a personal guarantor are a separate matter: under Section 60(1) of the Code the Adjudicating Authority for a personal guarantor to a corporate debtor is the NCLT, not the DRT. Part III of the Code has been notified only in relation to personal guarantors to corporate debtors, so the DRT’s jurisdiction under Section 179 in respect of other individuals and partnership firms is not presently operational.

This page is provided for general information about the firm’s areas of practice. It is not legal advice, and no advocate–client relationship arises from reading it or from an enquiry. The law stated is current as at the date of publication and may change.