When banks and financial institutions face challenges in recovering loans, especially when they turn into Non-Performing Assets (NPAs), the law provides a specialized forum to speed up the process — the Debt Recovery Tribunal (DRT).
If you’ve ever wondered “What is DRT?”, how it works, or what your rights are as a borrower or lender, this article will guide you through the essentials. Whether you’re a business owner dealing with a debt recovery notice, or a financial institution pursuing recovery, understanding the debt recovery process under the DRT framework is crucial.
Understanding the Debt Recovery Tribunal (DRT)
The Debt Recovery Tribunal (DRT) is a special tribunal established by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). Its primary purpose is to provide a fast-track mechanism for banks and financial institutions to recover loans that borrowers have defaulted on.
Unlike civil courts, which often face delays due to heavy caseloads, DRTs handle debt-related cases exclusively, making them more efficient in resolving matters related to:
- Recovery of loans by banks and financial institutions
- Enforcement of security interests (like mortgages or pledged assets)
- Settlement of disputes regarding debts exceeding ₹20 lakhs (jurisdiction limit under the Act)
- Appeals through Debt Recovery Appellate Tribunal (DRAT)
Why Was DRT Established?
Before the creation of DRTs, banks and financial institutions had to file recovery suits in civil courts. This often led to years of delay in recovering loans, locking up huge sums of money and affecting the overall banking system.
The RDDBFI Act, 1993 and later the SARFAESI Act, 2002 empowered DRTs to recover debts speedily, enforce security, and resolve disputes, while also balancing the rights of borrowers.
In short, DRTs were designed to protect the financial health of banks and ensure borrowers are not harassed unfairly, but dealt with under a structured legal process.
Powers of Debt Recovery Tribunal
The DRT has powers similar to civil courts under the Code of Civil Procedure, 1908, but with additional powers to speed up debt recovery. These include:
- Summoning and examining witnesses
- Ordering the attachment and sale of properties
- Reviewing and setting aside its own orders
- Granting interim relief to protect lender or borrower rights
- Enforcing the rights of secured creditors under the SARFAESI Act
The Debt Recovery Process: Step by Step
Here’s how the debt recovery process through DRT generally works:
1. Filing an Original Application (OA)
- The bank or financial institution files an OA before the DRT for recovery of dues exceeding ₹20 lakhs.
- This application includes loan details, borrower defaults, and security interests.
2. Issuance of Summons
- The DRT issues summons to the borrower/defaulter, requiring them to appear and file a written statement.
3. Borrower’s Response
- The borrower has the right to contest the claim, raise defenses, or challenge the bank’s documents.
- Borrowers may also question the validity of security interest enforcement under SARFAESI Act.
4. Hearing and Evidence
- Both parties present their evidence, witnesses, and arguments before the Presiding Officer.
5. Tribunal’s Order
- After evaluating the evidence, the DRT passes an order for recovery of the debt, including interest and costs.
6. Recovery of Debts
- A Recovery Officer (RO) executes the order by attaching and selling the borrower’s secured or unsecured properties.
Borrower’s Rights before the DRT
While DRTs primarily safeguard banks and financial institutions, borrowers have significant rights under the law:
- Right to be heard: Borrowers can contest claims and present evidence.
- Right against arbitrary actions: Banks cannot misuse SARFAESI provisions; all actions must comply with procedure.
- Right to appeal: Borrowers can appeal to the Debt Recovery Appellate Tribunal (DRAT).
- Right to fair treatment: Harassment or illegal recovery tactics are prohibited.
- Right to settle: Borrowers may request settlement, restructuring, or one-time settlement (OTS) of loans.
Role of Debt Recovery Appellate Tribunal (DRAT)
If a borrower or bank is aggrieved by a DRT order, they can appeal before the DRAT.
- The appeal must generally be filed within 30 days of the DRT order.
- The appellant (usually the borrower) may need to deposit 50% of the debt amount determined by DRT (which can be reduced to 25% at the discretion of DRAT).
- DRAT ensures that no party suffers due to incorrect or unfair DRT orders.
DRT vs SARFAESI Act: What’s the Difference?
The SARFAESI Act, 2002 allows banks to recover secured loans without court intervention by directly taking possession of secured assets and selling them. However, borrowers can challenge such actions before the DRT.
| Aspect | DRT | SARFAESI Act |
|---|---|---|
| Process | Tribunal-driven | Bank-driven (with later DRT review) |
| Scope | All debts above ₹20 lakhs | Secured debts only |
| Borrower’s Right | File reply and contest claim | Appeal to DRT against bank’s action |
| Speed | Moderate | Faster, as no prior tribunal approval needed |
Importance of DRT in Banking Law India
The functioning of DRTs is critical for:
- Banks: Quick recovery of debts improves liquidity and financial stability.
- Borrowers: Protection from arbitrary recovery actions.
- Economy: Strengthening the credit culture and reducing bad loans (NPAs).
- Secured Creditors: Enforcing rights under mortgage, pledge, or hypothecation agreements.
Challenges in DRT Proceedings
While DRTs are faster than civil courts, certain challenges remain:
- Increasing backlog of cases due to rising NPAs
- Limited number of DRTs in India compared to demand
- Procedural delays in execution of recovery certificates
- Borrowers facing difficulty in accessing legal representation
How to Recover Debt through DRT?
If you are a bank, financial institution, or corporate lender, the steps are:
- Engage a lawyer experienced in banking and financial recovery laws.
- File an OA before the DRT with all necessary documentation.
- Follow through with hearings and evidence.
- Enforce the order through the Recovery Officer.
For borrowers, defending a case before DRT requires:
- Filing a proper written statement
- Challenging incorrect claims
- Seeking legal remedies under DRT and DRAT provisions
Conclusion: Why You Need Legal Assistance in DRT Cases
Whether you are a bank, financial institution, or borrower, navigating the Debt Recovery Tribunal (DRT) procedure can be complex. From filing applications and contesting claims to appealing before the DRAT, every step requires a deep understanding of banking law in India.
We specialize in handling matters related to DRT, SARFAESI Act, debt recovery, and borrower rights. Our team provides strategic legal solutions for both lenders and borrowers, ensuring a fair and effective outcome.
Need help with a DRT case? Contact us at +91-8920599818 or whatsapp or visit our Contact Us page today for immediate consultation.