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Debt Recovery Tribunal under Insolvency and Bankruptcy Code 2016

Debt Recovery Tribunals (DRT) were established to make it easier to quickly collect debt that customers owe to banks and other financial institutions. After the Recovery of Debts Due to Banks and Financial Institutions Act (RDBBFI), 1993, was passed, DRT was established. A person or organisation that feels aggrieved by the DRT’s decisions may appeal such decisions to the Debt Recovery Appellate Tribunal (DRAT). Until that person deposits 75% of the outstanding debt as established by the DRT, the DRAT will not consider the appeal. 

According to section 179 of the Insolvency and Bankruptcy Code (IBC), 2016 application can be filed to DRT. In this blog, we will examine what DRT is, its importance, section 179 application to DRT, the role of DRT under IBC and the appeal procedures.

Historical Background

In order to collect their debts and then have the securities enforced as charged against them, banks and other financial institutions had to overcome several obstacles. As a result, an appropriate system needed to be created for banks and other financial institutions to recover their overdue debts. In 1981, a committee led by Shri T Tiwari examined and outlined the legal and other challenges that banks and financial institutions were facing and then recommended corrective actions to lessen those challenges.

The committee recommended amending current legislation and creating a special tribunal that would only try to recover debts owed to banks and financial institutions by using a swift approach as remedial measures. That led to the 1993 enactment of the Recovery of Bad Debts Due to Banks and Financial Institutions Act.

The Recovery of Debts Due to Bank and Financial Institution Act (RDDBFI Act), passed in 1993, established the Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs), whose main goals were to provide prompt adjudication and recover debts owed to banks and financial institutions. 

Another piece of law that aimed to recover debts quickly and within a set time frame came into being. The 2016 Insolvency and Bankruptcy Code was introduced. The Insolvency and Bankruptcy Code was created to consolidate and amend the insolvency process for individuals, corporations, and partnership firms in a timely manner that would maximise the value of the aforementioned individuals’ assets, encourage entrepreneurship, make credit available, and balance the interests of all stakeholders.

Debt Recovery Tribunal and Debt Recovery Appellate Tribunal

The Recovery of Debts and Bankruptcy Act (RDB Act)¹, passed in 1993, created the Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunals (DRATs) with the particular purpose of ensuring quick adjudication and debts recovery owed to banks and financial institutions. 39 Debt Recovery Tribunals (DRTs) and 5 Debt Recovery Appellate Tribunals (DRATs) are currently operating nationwide. A Presiding Officer and a Chairperson, respectively, lead each DRT and DRAT.

Importance of DRT

The primary objective and function of DRT is to recover money owed to banks and other financial institutions from borrowers. The Tribunal’s authority is restricted to resolving disputes involving the recovery of unpaid sums from NPAs that banks have declared in accordance with RBI criteria. The Tribunal is granted with all of the District Court’s authority. A recovery officer is another employee of the Tribunal who aids in the execution of recovery Certificates approved by the presiding officers. DRT adheres to the law by emphasizing swift case resolution and prompt implementation of the decision.

Role of Debt Recovery Tribunal under Insolvency Bankruptcy Code 

Section 179 of the IBC, 2016 (Adjudicating Authority for individuals and partnership firms). According to the IBC, DRT is the adjudicating authority for individuals, partnerships, and proprietorship firms and has been given a variety of responsibilities. 

Subject to the provisions of section 60, the Debt Recovery Tribunal, with territorial jurisdiction over the location where the individual debtor actually and voluntarily resides, conducts business or personally works for gain, is the adjudicating authority in relation to insolvency matters of individuals and firms. The Debt Recovery Tribunal has the authority to hear applications pertaining to such individuals under this Code.

According to subsection (2) of section 179, the Debt Recovery Tribunal shall have jurisdiction to hear and determine:

1. Any claim made by or against the individual debtor. 
2. Any suit, proceeding, or other action brought by or against the individual debtor.
3. A question of priorities or any other question, whether of facts or law, arising out of or in relation to insolvency and bankruptcy of the firm or individual debtor under this Code. 

Adjudicating Authority for Individuals and Partnership Firms

The purpose of the Code is to address the insolvency and bankruptcy procedures for individuals and partnership firms with defaulted or unpaid debts of at least one thousand rupees. On that note, the Debt Recovery Tribunal (DRT), established by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is the adjudicating authority able to handle insolvency and bankruptcy proceedings of individuals and partnership firms.

The Debt Recovery Tribunal, which is located where the individual debtor actually and voluntarily resides, conducts business, or works for pay, will be the appropriate adjudicating authority for undertaking and resolving matters related to the insolvency and bankruptcy of individuals and partnership firms. 

Once the concerned Debt Recovery Tribunal has been established and its territorial jurisdiction has been taken into consideration, it will then have the authority to hear and decide lawsuits brought against specific debtors, as well as claims made by or against those debtors, and issues relating to priority, law, or fact.

The insolvency and bankruptcy code has very carefully and purposefully coordinated the adjudicating authorities. The only debt recovery tribunals with the legal authority to take on and resolve cases involving insolvency and bankruptcy of individuals and partnership firms are those mentioned above. 

It is abundantly obvious that no civil court or authority in that jurisdiction has the power to hear any lawsuit or action over which a debt recovery tribunal or debt recovery appeals tribunal has jurisdiction under the Code.

Appeal Proceedings in Case of Individuals and Partnership Firms

The above-mentioned adjudicating authority for individuals and partnership firms is the DRT with territorial jurisdiction over the location where the individual debtor actually or voluntarily resides, does business or engages in gainful employment on a regular basis.

DRAT – Any person who feels aggrieved by the DRT’s decision may file an appeal before the DRAT once the application under IBC has been accepted against the person or partnership firm. Every appeal must be submitted to DRAT within 30 days. If DRAT determines that there was a legitimate reason why the appeal could not be lodged within the thirty-day window, it may be filed afterwards within a fifteen-day window only.

Supreme Court – A person may appeal to the Supreme Court if they are unsatisfied with the DRAT’s decision. The application that must be made must only address the legal issues raised by the order. After receiving the DRAT order, the application must be filed to the Supreme Court within forty-five days. However, if the Supreme Court determines that a sufficient clause stops the person, it may grant an extension longer than forty-five days. Only fifteen more days above the forty-five-day period will be permitted.

DRT or DRAT shall dispose of the application within the time frame outlined in the Code. However, the DRT or DRAT must document the delay in writing if the application is not rejected within the allotted time frame. The DRAT Chairperson must consider the cause of a delay before deciding whether to extend further the deadline set forth in the act by a further term of not more than ten days.

Conclusion

Under the Insolvency and Bankruptcy Code 2016, the Debt Recovery Tribunal plays a significant role in the resolution of insolvency and bankruptcy cases by individuals and partnership firms. The application should be filed with the DRT having jurisdiction over the location where the debtor’s registered office or principal place of business is located.

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Read Our Article: Complete Analysis DEBT Recovery Tribunal in India

1. https://drt.gov.in/front/actrules.php