Recovery Process & Enforcement Of Security Interest In India

OVERVIEW OF THE PRESENTATION

RECOVERY OF DEBTS - LEGAL FRAMEWORK IN INDIA DEBT RECOVERY TRIBUNALS & PROCESS OF RECOVERY RECOVERY OF DEBTS (DUE TO BANKS AND FINANCIAL INSTITUTIONS) ACT 1993 ("DRT ACT") SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2003 ("SECURITISATION ACT") DEBT RECOVERY - LEGAL FRAMEWORK IN INDIA

Indian Legal system encompasses varied legal provisions for recovery of debts by the Banks and Financial Institutions as follows :-

Summary suits under Order XXXVII of the Code of Civil Procedure, 1908. Ordinary suits for recovery, under Civil Law. Original Applications to be filed by Banks and Financial Institutions before Debt Recovery Tribunal for debt not less than Rs. 10 lakhs, under Recovery of Bank Due to Banks & Financial Institutions Act, 1993 (DRT Act). Action under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (Securitisation Act). Arbitration proceedings under Arbitration & Conciliation Act 1996, for recovery of outstanding amount as under Arbitration Agreement / clause in the loan documents, in cases where the Recovery of Debts due to Banks and Financial Institutions Act, 1993 is not applicable. Initiation of criminal action in addition to civil proceedings for prosecution and punishment as per the Indian Penal Code and other laws where debt is also tainted with fraud, cheating, misfeasance etc. Filing of criminal complaint under Section 138 of Negotiable Instruments Act, 1881 for dishonor of any cheque issued by borrower to the bank in discharge of legally enforceable liability. BROAD CLASSIFICATION OF THE DEBT WORK OUT PROCESS IN INDIA

Amount to be recovered

Procedure

Does not exceed Rs. 10,00,000/-

Filing simple suit for recovery before Civil Court. Filing of summary suit under Order XXXVII of CPC, 1908. Filing suit for foreclosure of mortgage. Arbitration proceedings if arbitration agreement exists. Exceeds Rs. 1,00,000/-

In case the "Security Interest" has been created in specific movable / immovable property provisions of the Securitization Act may be invoked to repossess the mortgaged property, without intervention of the court, and sell the same, provided the account has been classified as NPA.

Exceeds Rs. 10,00,000/-

Original application is to be filed before the DRT for recovery of dues. Bank can simultaneously initiate proceedings under Securitization Act as well. Civil court / Arbitrator will not have jurisdiction to entertain such claim.

DEBT RECOVERY TRIBUNALS & PROCESS OF RECOVERY

Debts Recovery Tribunals (DRT) and Debts Recovery Appellate Tribunals (DRAT) have been constituted under the provisions of the DRT Act for establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith.

DRT has also been given the power to adjudicate the applications filed by the Borrower/Mortgagor against the action of the Secured Creditor initiated under the Securitization Act

ESTABLISHMENT OF DRTs

The Central Government by notification has established Tribunals known as Debts Recovery Tribunals (DRT) to exercise the jurisdiction, power and authority confers under the Act at:

Mumbai, Delhi, Kolkata, Chennai,

Bangalore, Allahabad, Ahmedabad, Aurangabad,

Chandigarh, Madurai, Coimbatore, Cuttack,

Orissa, Patna, Bihar, Ernakulam,

Guwahati, Hyderabad, Vishakhapatnam, Jabalpur,

Jaipur, Lucknow, Nagpur, Ranchi

Pune.

Establishment of DRATs

In exercise of powers, the Central Government has established DRAT at places :-

Allahabad - Jurisdiction over DRTs functioning at Allahabad, Lucknow and Jabalpur. Chennai - Jurisdiction over DRTs functioning at Bangalore, Chennai, Coimbatore, Hyderabad, Vishakhapatnam and Ernakulam. Delhi - Jurisdiction over DRTs functioning at Delhi, Chandigarh, Jaipur. Kolkata - Jurisdiction over DRTs functioning at Cuttack, Guwahati, Patna, Kolkata and Ranchi. Mumbai - Jurisdiction over DRTs functioning at Ahmedabad, Aurangabad, Mumbai, Nagpur and Pune.

Composition of DRT and DRAT

DRT is presided over by a Presiding Officer, who is qualified to be a District Judge, and is appointed by notification by Central Government.

DRAT is presided over by a Chairperson, who is qualified for appointment or who has been a Judge of a High Court, or has been member of the Indian Legal Services who has held the...