DRT/DRAT Lawyer

 Recovery of Debts and Bankruptcy Act (RDB Act), 1993

The RDB Act, 1993 provides for establishment of Debts Recovery Tribunals (DRTs) with original jurisdiction and Debts Recovery Appellate Tribunals (DRATs) with appellate jurisdiction, for expeditious adjudication and recovery of debts due to banks and financial institutions, insolvency resolution and bankruptcy of individuals and partnership firms and connected matters there with. The Act aims to not discourage borrowers while simultaneously safeguarding the lenders’ interests. Because the applicable provisions have not yet come into effect, the Tribunals have not yet begun considering cases involving bankruptcy and insolvency resolution.

Jurisdictions: When a debt of Rs. 20 lakh or more is owed to any bank or financial institution defined by the Act or a consortium of banks or financial institutions, the Act applies. Where a bank or a financial institution has to recover any debt from any person, it may make an application under section 19 of the Recovery of Debts and Bankruptcy Act to the Tribunal within the local limits of whose jurisdiction—the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or the cause of action, wholly or in part, arises.
Under section 20 of the Recovery of Debts and Bankruptcy Act, any person who is dissatisfied with an order made or deemed to have been made by a Tribunal under this Act may prefer an appeal to an Appellate Tribunal with jurisdiction over the matter. However, the Appellate Tribunal may, for reasons that must be recorded in writing, reduce the amount to be deposited by such amount which shall not be less than twenty-five per cent of the amount of such debt so due] to be deposited under this section, in the event that an appeal is preferred by any person from whom the amount of debt is due to a bank, financial institution, or consortium of banks or financial institutions, the appeal shall not be entertained by the Appellate Tribunal unless such person has deposited.

Act of 2002 on the Securitization, Reconstruction, and Enforcement of Security Interests (SARFAESI)

The SARFAESI Act, 2002 aims to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights and for connected matters therewith. The Act has made it easier for banks and other specific financial institutions to recover secured debts from borrowers without the first court intervention. Borrowers can file applications in the Debts Recovery Tribunals (DRTs) against action taken for enforcement of security interest under this Act, with the appellate jurisdiction for such applications lying with the Debts Recovery Appellate Tribunals (DRATs). The Act is applicable to cases where security interest for securing repayment of any financial asset is more than Rs.1 lakh and the amount due is 20% or more of the principal amount and interest thereon.
Security interests in agricultural land and certain properties that are not subject to attachment under certain Acts are exempt from the provisions of this Act.

Security interest enforcement.

1. Any security interest created in favor of a secured creditor may be enforced in accordance with the provisions of this Act without the intervention of a court or tribunal, despite anything in sections 69 or 69A of the Transfer of Property Act, 1882 (4 of 1882).
2. If a borrower who is obligated to pay a secured creditor under a security agreement defaults on a payment or installment of a secured debt and the secured creditor labels the borrower’s account for that debt as a non-performing asset, the secured creditor has the right to require the borrower to pay off all of his obligations to the secured creditor within sixty days of receiving the notice, failing which the secured creditor has the right to exercise any or all of its rights under subsection (4).
3. The secured assets that the secured creditor intends to enforce in the event that the borrower fails to pay off the secured debts are to be detailed in the notice mentioned in sub-section (2). 2
   (3A) The secured creditor is required to consider any representations or objections made by the borrower upon receipt of the notice required by sub-section (2), and if the secured creditor determines that the representation or objection is not tenable, he is required to communicate the reasons to the borrower within fifteen days of receiving the representation or objection: Provided, however, that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons does not grant the borrower any right to prefer
4. (a) take possession of the borrower’s secured assets, including the right to transfer by way of lease, assignment, or sale for the realization of the secured asset; 4 [(b) take over the management of the borrower’s business, including the right to transfer by way of lease, assignment, or sale for the realization of the secured asset] In the event that the borrower fails to discharge his liability in full within the time frame outlined in sub-section (2), the secured creditor may employ one or more of the following

To assist the secured creditor in taking possession of the secured asset, Chief Metropolitan Magistrate or District Magistrate.

The secured creditor may, for the purpose of taking possession or control of any such secured assets, request in writing the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, and the Chief Metropolitan Magistrate or the District Magistrate shall, upon such request being made to him— (a) take possession of such asset and documents relating thereto; and (b) forward such asset and documents to the secured creditor: [Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that—

1. The total amount of the Bank’s claim as of the date of the application and the total amount of financial assistance provided;
2. The borrower has a security interest in multiple properties, the bank or financial institution has a valid and current security interest in those properties, and the bank or financial institution’s claim is within the time limit;
3. The borrower has established a security interest in a number of properties, the details of which are outlined in clause (ii) above;
4. The borrower has failed to repay the specified amount of the financial assistance that was given to them;
5. The borrower’s account has been classified as a non-performing asset as a result of this default in repayment of the financial assistance;
6. affirming that the borrower has been served with the sixty-day notice required by sub-section (2) of section 13 for payment of the defaulted financial assistance;
7. The secured creditor has considered the borrower’s objection or representation in response to the notice, and the borrower has been informed of the reasons why the objection or representation was not accepted;
8. Despite the above notice, the borrower has not paid back the financial assistance, so the Authorized Officer has the right to take possession of the secured assets in accordance with subsection (4) of section 13 and section 14 of the principal Act;

Application against measures to recover secured debts

Within forty-five days of the date on which any of the measures referred to in sub-section (4) of section 13 were taken by the secured creditor or his authorised officer under this Chapter, any person, including the borrower, may apply to the Debts Recovery Tribunal having jurisdiction over the matter, along with such fee as may be prescribed: 2 [Subject to the fact that different fees may be prescribed for making the application by the borrower and the person other than the borrower].