Recovery of Debts and Bankruptcy Act, 1993: the Debts Recovery Tribunal

By the end of the 1980s a bank suing for its money could expect to wait a decade for a decree and longer to execute it. The Tiwari Committee and the Narasimham Committee both said that the ordinary civil courts could not do the work, and Parliament responded by creating a separate forum with its own procedure and its own machinery of execution. The Act has been amended many times since, and now works alongside the SARFAESI Act and the Insolvency Code rather than alone.

1. Origin and Scheme

• The problem: recovery suits took years in the civil courts, and execution took longer still. The Tiwari Committee (1981) recommended special tribunals, and the Narasimham Committee (1991) repeated the recommendation.
• The Act: the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, renamed the Recovery of Debts and Bankruptcy Act, 1993 by the Insolvency and Bankruptcy Code, 2016, which also gave the tribunals jurisdiction over the insolvency of individuals and partnership firms.
• Constitutional validity: upheld in Union of India v. Delhi High Court Bar Association, (2002) 4 SCC 275, where the Supreme Court held that Parliament was competent under Entry 45 of List I to create a tribunal for the recovery of debts due to banks, and that the arrangement did not offend the separation of powers, subject to the writ jurisdiction of the High Courts remaining intact.
• The forums: Debts Recovery Tribunals at first instance, each presided over by a Presiding Officer qualified to be a District Judge, and Debts Recovery Appellate Tribunals in appeal, each presided over by a Chairperson qualified to be a Judge of a High Court.
• What it is not: the Act creates a forum for recovery, not a code of substantive law. The bank's rights still arise from the loan documents and the general law; the Act changes where and how they are enforced.

2. Jurisdiction

Figure 1: The operative sections in order

• Subject matter (Section 17): a Tribunal exercises jurisdiction to entertain and decide applications from banks and financial institutions for recovery of debts due to them. The Appellate Tribunal hears appeals against orders of the Tribunals.
• Debt: defined widely to mean any liability, inclusive of interest, which is claimed as due from any person by a bank or financial institution during the course of any business activity undertaken by it, whether secured or unsecured, payable under a decree or order or otherwise, and legally recoverable on the date of the application.
• Pecuniary limit: the Act applies where the amount of debt due is not less than ₹20 lakh, raised from ₹10 lakh by a notification of 2018 to reduce the volume of smaller matters and leave them with the civil courts.
• Territorial jurisdiction: the Tribunal within whose local limits the defendant resides or carries on business, or the cause of action arises, or, where the application is made against more than one defendant, where any of them is. The applicant bank may also apply where its branch that extended the facility is situated.
• Who may apply: a bank or a financial institution, or a consortium of them. An individual creditor cannot use the Act.
• Bar of jurisdiction (Section 18): on and from the appointed day, no court or other authority shall have or be entitled to exercise jurisdiction in relation to matters specified in Section 17, except the Supreme Court and a High Court exercising jurisdiction under Articles 226 and 227.

3. Procedure on an Application

Figure 2: From application to recovery

• The application (Section 19(1)): a bank or financial institution may make an application to the Tribunal within whose jurisdiction the matter falls, in the prescribed form and with the prescribed fee.
• Where a suit is pending: suits pending before a civil court when a Tribunal was established stood transferred to it under Section 31 and are dealt with as applications. Conversely, the first proviso to Section 19(1) allows a bank, with the Tribunal's permission, to withdraw its application in order to proceed under the SARFAESI Act, though Transcore holds that it need not do so.
• Summons and written statement: the Tribunal issues summons requiring the defendant to show cause within thirty days of service why relief should not be granted, extendable for sufficient cause by the Tribunal.
• Set off and counterclaim (Section 19(6) to (11)): the defendant may claim set off against the applicant's demand, and may set up a counterclaim, which the Tribunal deals with as a cross application, so that the whole dispute is resolved in one proceeding.
• Interim orders (Section 19(12) to (18)): the Tribunal may pass an interim order of injunction, stay or attachment against the defendant to restrain him from transferring or disposing of his property, may require security, and may appoint a receiver.
• Timeline (Section 19(24)): the application is to be dealt with as expeditiously as possible, and every effort made to dispose of it finally within one hundred and eighty days from the date of receipt.
• Procedure (Section 22): the Tribunal and the Appellate Tribunal are not bound by the Code of Civil Procedure, 1908, but are guided by the principles of natural justice and have power to regulate their own procedure. They have the powers of a civil court under the Code in specified matters, including summoning witnesses, discovery and the reception of evidence on affidavit.
• Appearance (Section 23): the applicant or the defendant may appear in person or be represented by one or more legal practitioners or by any of its officers, the bank's representatives acting as presenting officers.
• Limitation (Section 24): the Limitation Act, 1963 applies to an application made to the Tribunal as it applies to a suit.

4. Appeal

• Who may appeal (Section 20): any person aggrieved by an order made by the Tribunal may appeal to the Appellate Tribunal within thirty days from the date of receipt of the order, which the Appellate Tribunal may extend on sufficient cause.
• No appeal by consent: no appeal lies from an order made by the Tribunal with the consent of the parties.
• Deposit (Section 21): where an appeal is preferred by any person from whom the amount of debt is due, it shall not be entertained unless he has deposited with the Appellate Tribunal fifty per cent of the amount of debt so due as determined by the Tribunal. The Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to not less than twenty five per cent.
• Why the deposit: it is intended to deter appeals brought only for delay. It applies to the debtor, not to the bank, and the floor of twenty five per cent means it cannot be waived altogether.
• Disposal (Section 20(5)): the Appellate Tribunal is to dispose of the appeal as expeditiously as possible, and endeavour to do so within six months.
• Beyond the Appellate Tribunal: no further statutory appeal lies. A party may move the High Court under Articles 226 and 227, subject to the restraint in Satyawati Tondon.

5. Recovery

• The certificate (Section 19(22)): on an application being allowed, the Presiding Officer issues a certificate of recovery under his signature, specifying the amount payable, to the Recovery Officer.
• Modes of recovery (Section 25): the Recovery Officer shall proceed to recover the amount by one or more of the following modes: attachment and sale of the movable or immovable property of the defendant; taking possession of property over which a security interest is created and selling it; arrest of the defendant and his detention in prison; and appointing a receiver for the management of his movable or immovable property.
• Other modes (Section 28): the Recovery Officer may also require any person from whom money is due to the defendant to pay it to him, apply to a court holding money of the defendant, require an affidavit of assets, and recover by distraint and sale of movable property. Under Section 29, the Second and Third Schedules to the Income-tax Act, 1961 and the related rules apply to the recovery as if the debt were income tax.
• Stay on a down payment (Section 27): the Presiding Officer may grant time for payment where the defendant makes a down payment of not less than twenty five per cent, and the stay stands withdrawn if he defaults.
• Validity of the certificate (Section 26): it shall not be open to the defendant to dispute before the Recovery Officer the correctness of the amount specified in the certificate, and the Recovery Officer shall have no power to entertain any objection to the certificate on any ground.
• Appeal against the Recovery Officer (Section 30): any person aggrieved by an order of the Recovery Officer may, within thirty days, prefer an appeal to the Tribunal, which is the proper forum for a grievance about the manner of execution. Under Section 30A, where the appellant is the person from whom the debt is due, the appeal is not entertained unless he deposits fifty per cent of the debt as determined by the Tribunal.
• Overriding effect (Section 34): the provisions of the Act have effect notwithstanding anything inconsistent in any other law, while operating in addition to certain other recovery statutes.

6. The Act Today

• Alongside SARFAESI: a secured creditor may proceed under the SARFAESI Act without first obtaining a decree, and Transcore v. Union of India, (2008) 1 SCC 125 held that a bank which has already filed an application under the 1993 Act need not withdraw it before invoking SARFAESI. The two are complementary, not alternative.
• Alongside the Insolvency Code: where a corporate debtor is admitted into insolvency, the moratorium under Section 14 stays proceedings before the Tribunal. The Code has displaced the 1993 Act as the principal route for corporate debt.
• Individual insolvency: the renaming of the Act reflects the jurisdiction conferred on the Tribunals over the insolvency of individuals and partnership firms under Part III of the Code, which has been brought into force in stages, beginning with personal guarantors to corporate debtors in 2019.
• The enduring problem: the Tribunals are overloaded, the statutory timeline of one hundred and eighty days is routinely not met, and recovery rates have been modest. The answer has been additional benches, electronic filing and the diversion of corporate matters to the insolvency process rather than any change in the Act's design.

7. Questions Arising

Can a borrower go straight to the High Court instead of the Tribunal?

The writ jurisdiction under Articles 226 and 227 is expressly saved by Section 18 and cannot be excluded, being part of the basic structure. But United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 holds that High Courts should ordinarily decline to entertain such a petition where an efficacious statutory remedy exists, particularly in matters concerning the recovery of public money. In practice a writ is entertained only where the order is wholly without jurisdiction, where natural justice has been denied, or where the vires of a provision are challenged.

Is the fifty per cent deposit under Section 21 unreasonable?

It has been upheld, on the reasoning that the right of appeal is itself a creature of statute and may be conditioned. The deposit applies only to the debtor, after a Tribunal has already determined the amount due, and the Appellate Tribunal retains a discretion to reduce it to twenty five per cent for recorded reasons. The comparison usually drawn is with Section 18 of the SARFAESI Act, which uses the same figures, and with Mardia Chemicals, where a requirement of seventy five per cent with no power to reduce was struck down as oppressive.

8. Quick Revision

9. Frequently Asked Questions

What is the pecuniary jurisdiction of a Debts Recovery Tribunal?

The Act applies where the amount of debt due to a bank or financial institution is not less than ₹20 lakh. The limit was raised from ₹10 lakh by notification in 2018, so that smaller claims remain with the ordinary civil courts and the Tribunals are left with the larger matters.

Does the Act bar the jurisdiction of civil courts?

Yes, as to matters within Section 17. Section 18 provides that no court or other authority shall exercise jurisdiction in relation to those matters, except the Supreme Court and a High Court exercising jurisdiction under Articles 226 and 227. The writ jurisdiction cannot be excluded, but the Supreme Court has held in Satyawati Tondon that it should ordinarily not be exercised where the statutory remedy is efficacious.

What deposit must a borrower make to appeal to the Appellate Tribunal?

Fifty per cent of the amount of debt due as determined by the Tribunal, under Section 21. The Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to not less than twenty five per cent. The requirement applies to the person from whom the debt is due, not to the bank.

How is a recovery certificate executed?

By the Recovery Officer, under Section 25, by attachment and sale of the defendant's movable or immovable property, by taking possession of property over which a security interest exists and selling it, by arrest and detention, or by appointing a receiver. He may also require a person who owes money to the defendant to pay it to him, and Section 29 applies the Income-tax Act schedules on recovery. Section 26 bars any dispute before him about the correctness of the amount.

Can a bank use both the 1993 Act and the SARFAESI Act?

Yes. Transcore v. Union of India, (2008) 1 SCC 125 held that a bank which has already applied to the Tribunal under the 1993 Act need not withdraw that application before taking measures under Section 13(4) of the SARFAESI Act. The two statutes are complementary, one supplying an adjudicatory forum and the other a self help remedy for a secured creditor.

Why were the Tribunals created if the civil courts already existed?

Because the civil courts could not deliver in time. The Tiwari Committee (1981) and the Narasimham Committee (1991) both found that recovery suits took years and execution longer, so that a bank's security became worthless before it could be realised. The Tribunals were given a restricted subject matter, a procedure free of the Code of Civil Procedure, a statutory timeline and their own Recovery Officers, so that adjudication and execution sit in one forum rather than two.

Does the Limitation Act apply to an application before the Tribunal?

Yes. Section 24 provides that the Limitation Act, 1963 shall apply to an application made to the Tribunal as it applies to a suit. A bank must therefore bring its application within the period that would have governed a suit on the debt, ordinarily three years, computed from the relevant starting point, and may rely on an acknowledgment of liability or a part payment to extend it in the usual way.

10. Related Topics and Provisions

• The SARFAESI Act and enforcement of security interest
• The Insolvency and Bankruptcy Code, 2016 and banks
• Non-performing assets: classification and provisioning
• Resolution of stressed assets and wilful defaulters
• Securities for advances: lien and pledge