Debt Recovery Solutions

Debt Recovery Solutions

Debt recovery Solutions are a crucial part of financial management for companies, organisations, and people. Failure on the part of borrowers to fulfil their financial commitments can have detrimental effects on creditors. Various tactics and procedures are included in debt recovery solutions to recover money, products, or services that are owed.

For banks in India, non-performing assets (NPAs) and bad loans are a constant source of problems. Prior to 1993, this was a serious issue because these claims were filed in civil courts, where the litigation would often take years to complete.

In order to expedite debt recovery involving banks and other financial institutions, the Recovery of Debts Owing to Banks and Financial Institutions (RDDBFI) Act was passed in 1993, resulting in the creation of the Debt Recovery Tribunals (DRT).

DRTs are also accessible through the 2002 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.

Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act

Through the filing of Original Applications (OAs) in Debts Recovery Tribunals (DRTs) and appeals in Debts Recovery Appellate Tribunals (DRATs), the RDDBFI Act offers lenders and borrowers prompt remedies.

What are Debt Recovery Tribunals (DRT)?

• The Presiding Officer of the Tribunal and the Chairperson of the Appellate Tribunal are the same individuals who serve as the heads of DRTs and DRATs which the Central Government appoints.
• DRTs have the authority to issue comprehensive orders that go beyond the Civil Procedure Code. It is capable of hearing cross-claims, set-offs, and cross-suits.
• DRTs were given the authority to decide cases involving claims for up to 10 lakh rupees. In 2018, this cap was increased to twenty lakh rupees.
• Following adjudication, the DRT certifies the amount owed by the borrower and issues an order and Recovery Certificate. Recovery Officers carry this out in accordance with the income tax recovery process.

Jurisdiction of Debt Recovery Tribunals

• Banks and other financial organisations may submit applications to DRTs in order to recover debts owed to them.
• If the defendant resides or conducts business within the local limits of the Tribunal's jurisdiction, the banks may submit an application there.
• The Supreme Court and High Court prohibit all other courts from making decisions about debt recovery.

Proceedings of Debt Recovery Tribunals

• Banks must submit a nomination and pay the necessary fees to the DRT, which has jurisdiction over the area in which the bank operates.
• Before the initial hearing, the defendant must submit a written statement outlining his defence, and during the hearing, he must establish a counterclaim.
• The Tribunal may issue such an interim or final order after giving the applicant and the defendant a chance to be heard.
• The defendant may not be able to sell or transfer his property without the Tribunal's prior approval under the terms of the interim order that was issued against him.
• Within 30 days after the hearing, DRT would render a final decision after hearing from both parties and reviewing their submissions. Within fifteen days following the date of judgment, DRT will provide a Recovery Certificate, which it will then give to the Recovery Officer.
• Under the Tribunal's directive, the applicant may designate all or any portion of the property for conditional attachment.
• Additionally, the Tribunal may choose a receiver and grant him full authority to oversee the property and fight the lawsuit in court.
• In the event that a company registered under the Companies Act of 1956 receives a certificate of recovery, the Tribunal has the authority to direct the distribution of the firm's sale proceeds among its secured creditors.
• The 2002 law known as the Security Interest Enforcement and Reconstruction and Securitization Act (SARFAESI)
• Long after the RDDBFI Act was passed, problems like long-term asset blocking, asset-liability mismatch, and liquidity shortage persisted. In spite of the establishment of DRTs, banks were still unable to recover all of their losses. The SARFAESI Act was enacted in 2002 as a result.
• This Act gives banks and other financial organisations protected by it access to recover secured loans from borrowers without initially requiring the involvement of the courts.
• The borrower is notified when a debt is classified as a non-performing asset (NPA).
• When the collateral asset is insufficient to satisfy debts owed to creditors, the transaction into DRTs occurs. In these situations, the creditors have the option to apply to the DRT to recover the remaining portion of the debt.

Debt Recovery Tribunal Problems

• Since some Tribunals in large cities handle significantly more cases than they should be able to at any given time, most DRTs are overworked. This is negatively impacting the success rate of the Tribunals.
• DRTs become entangled with incidental matters like worker dues and state dues.
• In order to prolong the process, borrowers frequently file lawsuits in civil courts against their lenders.
• Certain courts have construed certain sections of the Act in the debtor's favour, using natural justice theories to defend the debtor's position.
• DRTs lack the necessary skills to handle intricate legal issues and the constantly changing methods and strategies used in fraud.
• There are currently fewer than 40 DRTs in existence, which is insufficient to deal with the high number of patients that are coming in from all across the nation.
• Corrective Actions in Relation to DRTs: the 2016 RDDBFI Act Amendments provide deadlines for each stage of the adjudication procedure.
• All DRTs and DRATs must follow the same procedural standards, which the Central Government can enforce.
• The Insolvency and Bankruptcy Code grants DRTs the authority to review bankruptcy cases involving both individuals and limited liability partnerships.