Understanding the Debt Recovery Framework

India's debt recovery mechanism operates through a specialized tribunal system established under the Recovery of Debts and Bankruptcy Act, 1993 (formerly RDDBFI Act). This framework was created to provide banks and financial institutions with a faster alternative to civil courts for recovering Non-Performing Assets. The system comprises Debt Recovery Tribunals (DRTs) as courts of first instance and Debt Recovery Appellate Tribunals (DRATs) as appellate forums.

In 2016, the Insolvency and Bankruptcy Code (IBC) introduced the National Company Law Tribunal (NCLT) as the adjudicating authority for corporate insolvency, creating a parallel track focused on resolution rather than mere recovery.

Debt Recovery Tribunal (DRT)

Establishment and Jurisdiction

DRTs were established under Section 3 of the RDDBFI Act, 1993. Currently, there are 39 DRTs across India. The jurisdiction of DRT includes:

• Original Applications (OA): Filed by banks/FIs for recovery of debts of ₹20 Lakh and above
• Section 17 Applications: Filed by borrowers challenging SARFAESI measures
• Section 17(3) Applications: For restoration of possession
• Counter-claims: By defendants in OA proceedings
• Interlocutory Applications: For interim reliefs, stay orders

Original Application (OA) by Banks

When a bank files an Original Application for recovery:

Section 17 Applications: Borrower's Remedy

Under Section 17 of SARFAESI Act, any person aggrieved by measures taken under Section 13(4) can approach DRT:

Grounds for Section 17 Applications

1. Account not NPA: Classification violates RBI IRAC norms
2. Defective Section 13(2) Notice:
   • Incorrect computation of dues
   • Missing mandatory particulars
   • Not served on all borrowers/guarantors
3. Section 13(3A) Violation: Bank failed to respond to representation within 15 days
4. Valuation Issues: Reserve price fixed arbitrarily without proper valuation
5. Procedural Irregularities:
   • Inadequate publication of sale notice
   • Sale below reserve price without justification
   • Collusion in auction process
6. Disproportionate Action: Measures excessive compared to default amount
7. Third-Party Rights: Tenants, lessees not given opportunity of hearing

Recovery Certificate and Execution

Upon passing an order in favor of the bank, DRT issues a Recovery Certificate (RC). The Recovery Officer then proceeds with execution:

• Attachment of Properties: Movable and immovable assets of judgment debtor
• Arrest and Detention: For willful non-payment (rarely used)
• Sale of Attached Property: Through auction process
• Garnishee Orders: Against third parties holding debtor's assets
• Appointment of Receiver: For management of assets

Debt Recovery Appellate Tribunal (DRAT)

Appellate Jurisdiction

DRAT hears appeals against orders of DRT under Section 18 of SARFAESI Act and Section 20 of RDDBFI Act. There are 5 DRATs in India:

• DRAT Delhi: Appeals from DRTs of Delhi, Chandigarh, Jaipur, Lucknow, Allahabad, Dehradun, Jabalpur
• DRAT Mumbai: Appeals from DRTs of Mumbai, Nagpur, Pune, Ahmedabad, Aurangabad
• DRAT Kolkata: Appeals from DRTs of Kolkata, Patna, Guwahati, Ranchi, Cuttack
• DRAT Chennai: Appeals from DRTs of Chennai, Bangalore, Hyderabad, Coimbatore, Ernakulam, Visakhapatnam
• DRAT Allahabad: Specific jurisdiction as notified

Pre-Deposit Requirements

Appeal Procedure

National Company Law Tribunal (NCLT) - IBC Proceedings

Corporate Insolvency Resolution Process (CIRP)

The Insolvency and Bankruptcy Code, 2016 introduced a paradigm shift from "recovery" to "resolution." NCLT serves as the adjudicating authority for corporate insolvency matters.

Who Can Initiate CIRP?

• Financial Creditors: Banks, NBFCs, bondholders (Section 7)
• Operational Creditors: Suppliers, service providers, employees (Section 9)
• Corporate Debtor: Company itself (Section 10)

Threshold Requirements

CIRP Timeline

Moratorium Under Section 14

Upon admission of CIRP, an automatic moratorium comes into effect:

• All suits and proceedings against corporate debtor stayed
• SARFAESI proceedings stayed
• No recovery action can be initiated or continued
• No transfer of assets by debtor (except in ordinary course)
• No termination of essential contracts

As held in Innoventive Industries v. ICICI Bank, this moratorium is automatic and overrides other laws including SARFAESI.

Committee of Creditors (CoC)

The CoC is the decision-making body in CIRP, comprising financial creditors only:

• Voting share proportional to financial debt owed
• 66% majority required for key decisions including resolution plan approval
• Operational creditors not part of CoC (as upheld in Swiss Ribbons)
• CoC appoints Resolution Professional, approves fees, evaluates plans

Resolution Plan vs. Liquidation

NCLAT Appeals

Appeals from NCLT orders lie to the National Company Law Appellate Tribunal (NCLAT):

• Limitation: 30 days from NCLT order (extendable by 15 days)
• No pre-deposit required for IBC appeals
• Further appeal: Supreme Court on questions of law

Strategic Considerations

For Financial Creditors (Banks/NBFCs)

• Choice of Forum: SARFAESI for secured assets; DRT for personal liability; IBC for corporate resolution
• Parallel Proceedings: SARFAESI and DRT can run simultaneously until IBC is triggered
• IBC Advantage: Time-bound resolution, moratorium against other creditors, haircut tax benefits
• Section 29A Screening: Ensure resolution applicants are not disqualified

For Borrowers/Corporate Debtors

• Pre-emptive IBC: Section 10 filing may be strategic to gain moratorium
• Settlement Window: Section 12A allows withdrawal if 90% CoC approves
• Challenging Admission: Contest default, dispute amount, claim pre-existing dispute
• Personal Guarantors: Separate insolvency framework; coordinate strategy

DRT Chandigarh: Practical Information