Money life:A Banker :14 july 2012
A staggering Rs2 lakh crore stuck in the Debt Recovery Tribunals reveals the failure of this well-intentioned legislation. The is the third part of a four-part series
Let us now examine the fate of one other well-intentioned legislation, “Recovery of Debts Due to Banks & Financial Institutions Act, 1993” (RDDB&FI Act). This Act has its origin in the recommendations made by Narasimham Committee I, 1992 but it was also influenced by the foreign exchange crisis and the Harshad Mehta securities scam.
The Act covered all debts owed to banks and FIs (financial institutions) in excess of Rs10 lakh and with it, the jurisdiction of civil courts on such debts ceased. The civil courts were asked to hand over the cases to Debt Recovery Tribunals (DRTs); the Act also provided for Debt Recovery Appellate Tribunals (DRATs).
These tribunals are under the ministry of finance of the central government which would appoint presiding officers, registrars, recovery officers, etc. Initially the presiding officers were either of the rank of district judge or qualified to be one but later legal officers from the ministries and banks were also considered fit to be appointed as presiding officers. Quite a few of the presiding officers and other staff were posted on deputation basis from their permanent jobs. As of a recent date, there were 33 DRTs and five DRATs across the country.
As per the Act, DRTs are required to endeavour to decide on the cases filed by banks within180 days and if the verdict is appealed in DRAT, within another six months.
Experience of the banks in DRTs shows that the deadline of 180 days is but rarely observed. The borrowers or their lawyers could get adjournments fairly easily, a practice they were adept at in civil courts. Perhaps at no time all the courts had presiding officers or the requisite number of recovery officers; posts remained vacant for months.
Recovery certificates to be issued after the verdict or interim orders, just got accumulated for want of signing authorities, forget about actual recovery. Those who came on deputation did not have the requisite level of commitment.
Quite a few of the presiding officers who were from the ministries having had no prior experience seemed incapable of the job or issued ambiguous orders or just agreed to adjourn hearing which was the easier option. Add to these the banks faced another problem: the banks cannot proceed with DRT cases where the borrower's case is already within the purview of BIFR/AAIFR.
Obtention of BIFR consent to proceed in DRT needed a marathon effort. Furthermore occasionally DRAT or a high court issues a stay order against DRT proceedings. The only party to suffer in this legal melee is the banks—indeed the country.
The number of cases pending in various DRTs, as per a report in Mint (dated 28 March 2012), is 63,669, i.e. an average of 1,930 cases per DRT. In a DO letter sent in October 2011 addressed to all PSU banks, the ministry of finance indicated the total claims of banks and financial institutions pending in DRT cases is a staggering amount of Rs2 lakh crore. No further comments are needed on the efficacy of this Act and its creature DRT.
The Narasimham Committee II 1998, called for special statute powers to banks to take possession of assets charged to them without the intervention of the courts and to sell them to Asset Reconstruction Companies (ARCs) which might be set up by the lenders or by others with full powers to dispose of the assets over a period of time. Such powers are already with state financial corporations.
The matter was examined in depth by the TR Andhyarujina (former solicitor general of India) Committee in 2000 based on which an Act called “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” (SARFAESI Act) was passed by Parliament. Some of the provisions of this were amended to meet the objections raised by the Supreme Court in response to some cases challenging the Act even as it upheld its constitutional validity. We will examine what happened to that Act in the next part.
(A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)
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