Received A DRT / Sarfaesi Notice? A Borrower’s And Guarantor’s Guide To Response Timelines And Defences

Introduction

The Debts Recovery Tribunal, also known as DRT, follows certain rules which relate to the time limits mentioned in the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act or the Act). These limits are not merely procedural requirements and instead are factors which influence the right of the borrower or guarantor depending on the stage of recovery proceedings in question. If one does not follow the deadline established by law, it may lead to an order being made ex parte or may mean the loss of the right of appeal or dismissing the claim on time grounds.

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Classification of the Account as a Non-Performing Asset

The classification of a loan account as a Non-Performing Asset (NPA) usually marks the prior step in the recovery process. As per the rules issued by the Reserve Bank of India, an account can only be classified as NPA if default continues for a period of 90 days¹. This classification does not happen as per the provisions of the RDB Act; instead, is a regulatory requirement before approaching the Tribunal.

Institution of the Original Application u/s 19 of the RDB Act

For recovering the debt, the bank should file the Original Application (OA) before the DRT with territorial jurisdiction under Section 19 of the Act². The Act does not provide for a specific time limit within which the OA should be filed after the default. However, the application will have to comply with the general limitation law in the sense that the application has to be filed within 3 years of the date of default or, if applicable, after the date of the last acknowledgment of debt³.

Service of Summons and Filing of the Written Statement

Once the Original Application is filed with the Tribunal, Section 19(4) mandates the issuance of a summons which requires the defendant to show cause why the relief sought by the applicant should not be granted within thirty days of receiving such summons⁴. In the same vein, Section 19(5) permits the defendant to file a Written Statement within thirty days of the service of the summons⁵. Such a period is significant because it presents an opportunity for the borrower or guarantor to record all available defenses. Although the Presiding officer has the power to extend such time, it is only for good cause that such discretion is exercised. If for any reason the defendant fails to appear or file a Written Statement in the stipulated time frame, the Tribunal will have the power to proceed ex-parte under Section 22⁶.

Adjudication U/S 22 of The Act

Section 22 of the Act indicates that the Code of Civil Procedure, 1908 does not apply to this Act and the Tribunal is guided by the principles of natural justice in accordance with the provisions of this Act and the rules made thereunder⁷. There is no specific time limit for the period from the filing of pleadings to the time when the final order is passed. The length of this phase depends on the kind of the dispute, facts and evidence, and the behavior of the parties involved.

Issuance of the Recovery Certificate and Execution

If it turns out that the amount demanded is payable, the Tribunal will issue the Recovery Certificate in accordance with Section 19(22) of the Act⁸. The Recovery Certificate will then be sent to the Recovery Officer for enforcement and execution purposes. Sections 25 to 28 allow the Recovery Officer to recover the amount through attachment or sale of property, arrest or imprisonment of a debtor, appointment of receivers, or any other appropriate way prescribed by the law based on the idea presented by the Second and Third Schedules of the Income Tax Act, 1961⁹. The duration between the issue of the Recovery Certificate and the start of the execution procedures is not defined by law.

If a party wishes to contest an order of the Tribunal, it may approach the Debts Recovery Appellate Tribunal (DRAT) according to Section 20 of the Act. Claims against such appeals must be laid out within 45 days of receiving a copy of the order, although the Appellate Tribunal may still hear the case if sufficient reason is provided for the lateness of the filing¹⁰.

In addition, Section 21 of the Act introduces a significant condition which makes it necessary for the person against whom the appeal is preferred, to deposit at least 50% of the amount that has been declared to be due under Section 19, except in case of any written order by the Appellate Tribunal reducing the amount to a minimum of 25%¹¹. The Supreme Court of India has also stated that the requirement to deposit the amount is an obligatory requirement and cannot be waived altogether¹². The required percentage for depositing the amount has been changed to the currently applicable 50% from the previous 75%, following the amendment done to the law in 2016¹³.

Conclusion

The statutory framework of the RDB Act reveals an intentional intention of the legislators to achieve quick recovery of institutional debts, while at certain predetermined stages of the process providing the debtor with the chance to present his case. Each of the time frames analyzed so far works independently of the merits of the relevant claims.

Footnotes

1. Reserve Bank of India, Master Circular – Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances, RBI/2015-16/101, DBR.No.BP.BC.2/21.04.048/2015-16 (July 1, 2015), https://www.rbi.org.in.

2. Recovery of Debts and Bankruptcy Act, No. 51 of 1993, India Code (1993). The statute was originally enacted as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and was renamed pursuant to § 227 of the Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, India Code (2016), § 19.

3. The Limitation Act, No. 36 of 1963, art. 137, India Code (1963).

4. RDB Act, supra note 2, § 19(4).

5. Id. § 19(5).

6. Id. § 22(2)(b).

7. Id. § 22.

8. Id. § 19(22).

9. Id. §§ 25–28.

10. Id. § 20(1).

11. Id. § 21.

12. Narayan Chandra Ghosh v. UCO Bank, (2011) 4 S.C.C. 548 (India); Kotak Mahindra Bank Ltd. v. Ambuj A. Kasliwal, 2021 INSC 90 (India).

13. Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, No. 44 of 2016, § [amending RDB Act § 21], India Code (2016) (substituting “fifty per cent.” for “seventy-five per cent.,” effective Sept. 1, 2016).

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