KIIT LAW SCHOOL

KIIT UNIVERSITY, BHUBANESWAR-751024

PROJECT ON BANKRUPTSY AND INSOLVENCY LAW RECOVERY PROCEEDINGS UNDER DEBT RECOVERY LAW IN INDIA

Submitted By: Ayan Roy (783007)

Submitted to: Prof. Sarthak Guru

ACKNOWLEDGEMENT
I hereby thank my teachers, friends and well wishers and all the members of the KIIT LAW SCHOOL, who have been constantly helping me by giving their invaluable suggestion for improvement of my project. However, the mistakes, deficiencies if any are my own. Finally, I wish to extend my deepest gratitude to Prof. Sarthak Guru for his constant support and encouragement. Thanks for your anticipation.

INTRODUCTION In the early days the people live their life miserably. The conditions of the living standard of the people were not up to the mark rather we can say that the living standard of the people was very low. But after independence, the central government felt the need of improving the living standard of the people. And in furtherance of attaining this living standard various types of developmental plans were taken up by the government. The banks and the financial institutions started playing important or significant role in the promotion of the trade and industry. Several financial institutions were established in the country since the year 1948. A planning commission was also appointed by the government of India in December 1949 to monitor the developmental scheme. In furtherance of the objective of the five year plans the banks spread their branches throughout the country and assisted in the enterprising business in the large way. However recovery of dues to the banks became a serious problem as huge amount of public money were blocked in the hands of defaulting borrowers. The government of India, as a step to streamline the system appointed committees like Tiwari Committee', Narasimham Committee'. The Narasimham committee and a high level committee headed by Shri V.S. Hedge.1 All these committee recommended in one voice for establishing special tribunals for speedier adjudication of the claims of the banks and financial institution. The main focus or aim of all these committee is to avoid delay in the adjudication proceeding and attain the expeditious adjudication proceedings. As a result a draft bill was introduced in the Lok Shabha on 13th may 1993. Since the parliament was not in session, the president of India promulgated an Ordinance No. 25 of 1993, which came in to force on 24th June, 1993. It subsequently became "The Recovery of the debt due to Banks and Financial Institutions Act, 1993 with retrospective effect from 24th June, 1993.2 The enactment is considered as the special enactment for ensuring expeditious adjudication of the claims of the banks and financial institutions and speedy recovery of their dues. The tribunal and the appellate tribunal are not bound by the Code of Civil Procedure but are guided by the principle of Natural Justice and their procedural rules. They are also vested with power to regulate their own procedure. The provisions of the act are made applicable to the claim where the amount of the debt due to banks and financial institution is rupees ten lakh and above or such

1 2

K. Panduranga Rao, Law Relating to Debts Recovery Tribunals, 4th Edition pg. no. 01 Ibid 1

other amount being not less than one lakh rupee as the central government may notify. Every pending suit or other proceeding where the amount of debt is rupee ten lakh and above in any civil court immediately before the date of establishment of tribunal under this act shall stand transferred to it for adjudication. The bank or the financial institution seeking to recover debt from a borrower can make an application to the tribunal concerned, whereupon summons is sent by it to the defendant. After giving him an opportunity of being heard the tribunal adjudicates the claim by passing an order. If the claim is proved the tribunal adjudicates the claim by passing an order. If the claim is proved the tribunal will issue a recovery certificate. No court or the other authority shall have the jurisdiction or powers to entertain and decide such claims of Banks and Financial Institutions. Recently in the year 2002 another similar Act, Securitization and Reconstruction of the financial assets and enforcement of security interest act 2002 was passed for the benefit of banks and financial institutions making recovery easier and speedier under it. Very recently the DRT Rules 1993 have also been amended omitting the most controversial rule 10 and changing certain other provisions. Objective of the Act: The Recovery of Debts Due to Banks and Financial Institution Act, 1993 is enacted to provide for the establishment of Tribunals for Expeditious adjudication and the recovery of the debts due to the banks and the financial institution and for the matter connected therewith or incidental thereto.3 In order to implement and the recommendation of the Tiwari Committee and Narasimham Committee the legislation was made to establish special tribunal for the expeditious or speedier adjudications of the claims of the banks and the financial institutions and recover the debt to from the defaulter. The preamble of the act reveals the purpose and the scope of legislation. It also indicates the aims and objectives of the Act that is the establishment and the Tribunals. The importance of this act can be understood in the light of the expeditious adjudication of the claims of the banks and the financial institution. The main focus of the enactment of these laws was to reduce the delay time in the adjudication process and helps the bank to recovery the due to banks from the defaulter as speedy as possible. So it can be said that the two important aims or objective of enacting this law was for:3

Ibid 1

a) b)

Expeditious adjudication of the claims of the banks and financial institutions Speedy recovery of the debts from the borrower

Expeditious adjudication: In the case of United Bank of India v/s Debts Recovery Tribunals and Others4, the Supreme Court of India emphasized the view that while dealing with the cases under the Act relevant provisions have to be construed bearing in the mind the objectives for which the parliament passed the enactment. The prime objective of the act is the establishment of tribunals for the expeditious and speedier adjudication and recovery of the debt due from the banks and financial institutions. The above case laws lays emphasis on the main objective of the enactment of this act that is the expeditious adjudication of the claims of the banks and financial institutions and also the speedy recovery of the debt due to the banks and financial institutions. It helps in avoiding delay in the adjudication proceeding in this regards. Speedy Recovery by Summary Proceedings: As regards to this objective of the act in the case of Kundan Rice and General Mills and other v/s Union of India and Others5, a writ petition challenging the vires of the Act, the divison bench of Punjab and Haryana High Court observed that the amount due to the banks and the financial institutions is the public money where the interest of the public is involved. The statute aims at recovering such money in which the public has the interest. Hence, where there is conflicts between the interest of the private individuals and the public at large, a differentials treatment is acceptable and the summary procedure of adjudication instead of the elaborate trial as which is in the Civil Procedure Code before the Tribunal is permissible and held that the Act is not ultra vires or unconstitutional. Recommendations of the High Power Committees: In the Allahabad Bank v/s Canara Bank and others, the Apex court held that the Act is intended for speedy and summary remedy for recovery of huge amounts which were due to the banks and financial institutions.6 Their lordship narrated the extract of reports of Tiwari Committee and
4 5

United Bank of India v/s Debts Recovery Tribunals and Others AIR 1999 SC. 1381 Kundan Rice and General Mills and other v/s Union of India and Others, ll (1997) BC 79 6 K. Panduranga Rao, Law Relating to Debts Recovery Tribunals, 4th Edition pg. no. 04

Narasimham Committee and their recommendations for setting of the Tribunals for the recovery of the debts due to the banks and financial institutions which read as under. In Tiwari Committee Report of 1981, it explained in respect of the suits by Banks and Financial institutions there have been normal delays at the stage of the trial as well as at the stage of the execution in various courts and hence it stated a principle "the principle that the state should have a special procedure to enforce its own demands should equally be extended to the recovery of dues to banks and the financial institutions as well."7 In fact it was recommended by the tribunal under Article 323-A and 323-B of the constitution of India should be constituted. The Tribunal should not be bogged down by the Civil Procedure Code but should have a simple procedure guided only by the principle of the natural justice. It was stated that the Tribunals should follow simple and summary procedure in accordance with the principle of natural justice. The Tiwari Committee also prepared a draft of the proposed legislation in Annexure XI to the report and stated that all the execution proceedings were to be initiated only before the Adjudication Officer so that such execution proceedings should be completed speedily. The above report of 1981 was followed ten years later by the Narasimham Committee Report which stated that the special legislation recommended by the Tiwari Committee in the year 1981 should be immediately enacted. The latter committee too observed that we regard setting up the Special Tribunals as crucial to the successful implementation of the financial sector reforms to ensure the speedy remedy of the adjudication and execution against the defaulters. Even in regard to priorities among creditors they said committee stated that the adjudication officer will have such power to distribute the sale proceeds to the Banks and Financial Institution being the secured creditors in accordance with inter se agreement or arrangement between them and to the other persons entitled thereto in accordance with the priorities in the law.

Ibid 6

ESTABLISHMENT OF TRIBUNAL AND APPELLATE TRIBUNAL: Establishment of Tribunal: As regards to the issue of the establishment of the Tribunal, Section 3 of The Recovery of the Debts Due to Banks and Financial Institution Act, 1993 deals with the establishment of the Debt Recovery Tribunal. As per the sub section (1) of section 3, it makes mandatory for the central government to establish one or more tribunals to be known as the Debt Recovery Tribunals. Such tribunals which are established are supposed to exercise the jurisdictions, power and the authority conferred on them as provided under chapter III of the Act.8The sub section (2) of the act also mandates the central government to also specify in the exercise of the jurisdiction for entertaining and deciding the application filed before them in the manner provided under section 19 of the act for the recovery of the debt due to banks and the financial institutions. As regards to section 19 of the act, it lays down procedure for filling applications to the tribunals and every such application shall be in such a form and be accompanied by such documents and other evidence as may be prescribed. Section 3 of the act provides for the establishment of the Debt Recovery Tribunals. The central government can establish the tribunals after notifications of their location, date and territorial jurisdictions I the Official Gazette. After the notification the tribunals start functioning by assuming the jurisdiction, powers and the authority conferred on them under the Debt Due to Banks and Financial Institution Act. The central government has notified twenty eight tribunals so far in the areas like Kolkata in which three tribunals are established, Allahabad, Delhi where three tribunals has been established, Jaipur, Bangalore, Ahmadabad, Guwahati, Patna, Chennai where the tribunal is two, Mumbai where there is three tribunals, Hyderabad, Jabalpur, Ernakulum, Chandigarh, Lucknow, Aurangabad, Nagpur, Cuttack, Ranchi, Visakhapatnam and Coimbatore. Composition of the Tribunals: A Tribunal shall consist of one person only hereinafter referred to as presiding officer to be appointed by notification by the central government notwithstanding anything contained in sub-

Srivastava's, Securitisation and Debt Recovery Laws, 5th Edition, pg .no. 113

section (1), the central government may authorize the presiding officer of one tribunal to discharge also the functions of the presiding officer of another tribunal.9 While section 3 of the act provides for the establishment of the Tribunal and this section that is section 4 of the act deals with composition of the tribunals. The distinction of the difference between the two sections is very clear. The expression establishment as stated in section 3 of the act refers to the act of establishing or the act of creating or bringing in to being that is the institution and the finding of the forum to be known as Debt Recovery Tribunal whereas the expression composition as stated in section 4 of the act coveys the act of collecting or combining different parts or element to form in the working order. The subsection (1) of this section provides that Debt Recovery Tribunal which is to be established under section 3 of the act shall consist of the one person only known as the presiding officer to be appointed by the notification of the central government. Sub section (2) of the act empowers the central government to authorize the presiding officer of one tribunal to discharge also the function of the presiding officer of the other tribunal. In other words we can say that this section consist of or contain two clauses. The sub section (1) is regarding appointment of the presiding officer by the notification of the central government. On the other hand subsection (2) confers power on the central government to authorize the presiding officer of one tribunal to discharge the function of the presiding officer of the other tribunal in the event of necessity. In contrast to the tribunals established under the other enactments, the Debt Recovery Tribunal is presided over but only a single member that is the presiding officer who assumes the power and authority as the head of the tribunal and entertains the application from the banks and financial institution within the territorial jurisdiction of the tribunal concerned to decide claims of Rs. 10 lakh and above. The presiding officer is appointed by a notification of the central government when the post falls vacant for any reason. The provision is incorporated in the act to ensure the continuous functioning of the tribunal.

Sec-4 of Recovery of Debt Due to Banks and Financial Institutions Act, 1993

Establishment of the Appellate Tribunal: The issue of the establishment of the Appellate Tribunal has been dealt under section 8 of the Debt Due to the Banks and Financial institution Act. Section 8 lays down the procedure of the establishment of the Appellate Tribunal as defined in section 2(a) of the act. Sub section (1) gives power to the central government to establish by notification in the official gazette one or more appellate tribunal known as Debt Recovery Tribunals. The Appellate Tribunal which is established shall exercise the jurisdiction, power and authority conferred on the tribunal under the Act.10 In order words this section empowers the central government to establish one or more appellate tribunals which would have powers to hear appeals against the orders of the tribunals. The central government constituted so far five appellate tribunals which are functioning at Mumbai, Chennai, Calcutta, Delhi and Allahabad. They have jurisdiction over the Debts Recovery Tribunal functioning within their jurisdiction as shown in the notification of the central government. Composition of Appellate Tribunal: The composition of the appellate tribunal has been dealt under section 8 of the Debt Due to Banks and Financial Institution Act. Section 8 of the act provides for the composition of the Appellate Tribunal and requires the central government to appoint by notification one person to be called as the chairperson of the appellate tribunal. This section deals with the composition of the Appellate Tribunal. The Appellate Tribunal will have one chairperson appointed by the central government by a notification. The service conditions of the chairman are governed by the rules framed by the central government. Before the amendment the head of the Appellate Tribunal was known as the presiding officer who has no distinction from the presiding officer of the tribunal. When the need for change is felt the word chairperson has been substituted for the word presiding officer to distinguish one from the other. The constitutional validity of the act was challenged in the Supreme Court on the ground that the act is unreasonable and violative of Article 14 of the constitution of India and also beyond legislative competence of the parliament. The issue has been discussed in the case of Delhi High
10

Srivastava's, Securitisation & Debt Recovery Laws, 5th edition pg.no.117

Court Bar Association and others v/s U.O.I and others,11 as well as in the case of D.K. Abdul Khader and others v/s U.O.I and others12, the apex court held disapproved the decision and held that the R.R.D. Act 1993 is a valid piece of legislation.

JURISDICTION, POWER AND AUTHORITY TRIBUNAL: Sub section (1) of Section 17 of the act deals with jurisdictions, power and the authority of the Debt Recovery Tribunal and says that a Tribunal shall exercise on and from the appointed day, the jurisdiction, power authority to entertain and decide applications from the banks and the financial institution for the recovery of the debt due and the recovery of them from such banks and financial institutions. Power of the chairpersons of the Appellate tribunal: As regards to the power of the chairpersons of Appellate Tribunal it has been dealt in section 17 A of the Act. It gives power to the chairperson of the Appellate Tribunal to inspect the tribunal under its control and directs the Presiding Officer of the tribunals for discharging their functions properly. The authority is provided to the chairperson of the Appellate Tribunal for recording confidential reports and appraising the work of the presiding officer and prevents their arbitrary exercise of the power. The power to transfer the cases is regarding the transfer of cases from one tribunal to other. This is similar to section 24 of the Civil Procedure Code. The chair person of the Appellate Tribunal is vested with the general power of the transfer by withdrawing the cases from a tribunal subordinate to it and transferring to another tribunal within its jurisdiction. Another power of the Chairperson of the Appellate Tribunal is the power of the superintendence of the transfer of the cases to the newly established Debt Recovery Tribunals. By the virtue of the establishment of the newly constituted Debts Recovery Tribunal both the banks and the debtors so also borrowing public would be benefitted by it as it is situated almost in the middle of the three states and in close proximity to the parties as compared to Debt Recovery Tribunal at Jaipur. None of the contentions does have any merit rather their contentions are based on the misconceptions.

11 12

Delhi High Court Bar Association and others v/s U.O.I and others, ll (2002) BC 194 S.C D.K. Abdul Khader and others v/s U.O.I and others ll (2001) BC 578 : AIR 2001 Kar. 176

Presiding Officer, Debt Recovery Tribunal Jaipur is directed to immediately transfer all the pending cases to DRT Chandigarh within the jurisdiction under notification.13

Bar of Jurisdiction: The Debt Recovery Tribunal and Appellate Tribunal are judicial bodies having powers to adjudicate the matters before them in accordance with the provisions of the Act, Rules and regulations framed under. The section 17 and section 18 of the act go hand in hand. The former lays down the jurisdiction, power and authority of the Tribunal and Appellate Tribunal and the latter excludes the jurisdiction of the civil court and the other courts in relations to the matter where the amount of debt is ten lakh rupee and above or such an amount being not less than rupee one lakh as the Central Government may specify by the notification. If the claim made by the banks for the recovery of the debt which is more than ten lakh rupee as due to it from the defendants, the Tribunal has exclusive jurisdiction to decide the dispute.14 The Debt Recovery Tribunals are judicial bodies with the power to adjudicate the matters in accordance with the provisions of the acts, rules and regulations framed under it. The Tribunals are vested with the same power of the Civil Procedure Code in respect of the following matters enumerated in section 22 of the act which are:

Summoning and enforcing the attendance of any person and examining him on oath. Requiring the discovery and the production of the documents. Receiving evidence on affidavits. Issuing commissions for the examinations of the witnesses or documents. Reviewing its decisions. Dismissing an application for default or deciding it as ex parte. Any other matter that may be prescribed.

13

Jaipur DRT Association v/s Union of India and Others, I (2001) BC 486.(DB) 14 Union Bank of India v/s Debt Recovery Tribunal, (1999) ISJ (Banking) 513 SC

The expression authority is often synonymous with power. It is the right to command or act. While discharging the duties, the Tribunal can exercise its implied authority to meet the ends of justice. The tribunal can exercise the inherent power to make such orders and give such directions as may be necessary to give effects to the orders or to prevent the abuse of its process. In the case of Rama Lakshman Glass Pvt. Ltd v/s State of Bihar 15, it was held that having submitted to the jurisdiction of the tribunal and having taken the chance of judgment later on the jurisdiction of the tribunal cannot be challenged in the writ petition. The High Court of Andhra Pradesh held in the case of Singareni Collieries Ltd. v/s State of Hyderabad and Others16, that the tribunal can pass any appropriate order including garnishee order though it is specifically not provided in the Act. And in the same way the Supreme Court in ICICI Ltd. v/s Grapco Industries17, held that depending on the circumstances of each case the tribunal can grant an interim ex parte order of injunction or a stay for a short duration but such order cannot be granted as a matter of routine.

PROCEDURE OF TRIBUNAL Application to the Tribunal Section 19 of the act is a code by itself.18 Prior to the amendment there were only eight sub sections. But after amendment the entire section has been restructured by making twenty five sub sections with some more important provisions. It deals with the procedures right from filing the application by a bank or the financial institution before the tribunal to the stage of issuance of recovery certificate to the Recovery Officer for the recovery of the adjudged amount. The act itself was introduced to effect speedier recovery of dues from the defaulting borrowers of banks and financial institutions. The cause of action is the right which a party has to institute a judicial proceeding. It is a right to sue. In relation to the Recovery of Debts Due to Banks and Financial Institutions Act it is the basis of claim. In the case of LCL Jewellery Ltd & Others v/s Bank of Baroda & others,19 documentation was done in Lucknow, property of the petitioner on which security was created is

15 16

AIR 2000, Pat. 210 1998(2) ALD 440: 1998(1) APLJ 369. 17 1999(4) SCC. 710 18 K. Panduranga Rao, Law Relating to Debt Recovery Tribunals, 4th edition, pg. no. 60 19 IV (2004) BC 124.

situated at Lucknow, loan was sanctioned in Lucknow and the part of the cause of action also arose in Lucknow. Therefore the territorial jurisdiction of DRT is at Lucknow. The application shall be filed by the applicant with the registrar within whose jurisdiction:a) The applicant is functioning as a bank or financial institution as the case may be for the

time being b) The defendant or each of the defendants where there are more than one at the time of

making the application actually or voluntarily resides or carries the business or personally works for gain c) Any of the defendants where there are more than one at the time of making the application,

actually or voluntarily resides or carries on business or personally works for gain d) The cause of the action wholly or in part arises

The sub section (3) deals with the form of application, documents to be enclosed to it and the fee payable to the tribunal. The application made in to the tribunal should comply with all the conditions contained in section 19 of the act. As regards to the service of the summons is concerned it has been dealt in subsection (4) & (5) which states that the service of summons on defendant and after service of summons the defendant has to file his written statement within 30 days from the date of service. The defendant's claim to set off is dealt in subsection (6) & (7). Set off is a positive allegation against the applicant that can be raised by the defendant in his defence. When the defendant owes something to the defendants it should be taken in to account. The provision of the counterclaim has been included in the act by the Recovery of Debts due to Banks and Financial Institution Amendment Act of 2000 through insertion of the sub section 8 to 11 in this section.20 There is a difference between the counter claim and set off. The former is a separate claim where as the latter is a part of his defence. It is not necessary that the counter claim must be on the same cause of action. In the case of Belgundi Cements Ltd. & Others v/s Branch Manager Central Bank of India & others21, the Karnataka High Court held that the defendants are at liberty to make counter claim instead of filing a suit which in the nature of
20

K. Panduranga Rao, Law Relating to Debt Recovery Tribunals, 4th edition, pg. no. 65 21 2002 (1) SLJ 105.

claim for damages and it is within the realm of the tribunal to adjudicate the matter as a counter suit. The subsection (12) of the Act deals with the interim order. It provides discretion to the tribunal to pass an interim order by way of injunction or stay or attachment against the defendant. This power is vested in the tribunal to pass suitable interim orders either by way of injunction or stay or attachment depending up on the necessity of the circumstances of the case. The issue of the attachment has been explained sub section 13 to 16. These provisions are similar to the Order XXXVIII, Rules 5 and 6 of the Civil Procedure Code. Before an order of attachment is passed, the tribunal should be satisfied that the defendant is about to dispose of its property or about to remove it from its jurisdiction. The sub section (14) is regarding the evaluation of the property required to be attached. Duty is on the applicant to specify the property required to be attached and to estimate its value. The subsection (15) is regarding conditional attachment. It may be imposed by the tribunal but if the defendant complies with the condition imposed by the tribunal the conditional attachment should be withdrawn by the tribunal. The subsection (16) deals with the valid attachment. The punitive powers have been dealt in sub section (17). It is well settled principle that the administration of justice will suffer unless the orders of the court are not respected by the parties. The subsection (18) deals with the appointment of receiver or commissioner. Originally the provision of appointment of receiver before issuing recovery certificate by the tribunal was not found in the act. Therefore the need was felt and this sub section was inserted by amending the Act in 2000.22the distribution of sale proceeds under section 529 A of the Companies Act dealt under sub section (19). The sub section (20) deals with Awarding Interest. It enables the tribunal to hear both the parties and pass interim or final order being guided by the principle of Natural Justice. The sub section (21) deals with furnishing the copy of the order. After hearing the case the order is pronounced. Under this provision the tribunal is under the absolute obligation to send a copy of the order to the parties that is the applicant and each defendant. The issuance of recovery certificate to the recovery officer has been dealt under sub section (22). The main objective of the tribunal is to recover debts due to banks and financial institutions. Therefore the

22

Srivastwas's, Securitisation & Debt Recovery Laws pg. no 167

duty of a tribunal is adjudication of claims and issuing certificates for recovery of the adjudicated debts and realization of the amount specified in recovery certificate.

Appeal to the Appellate Tribunal: The appeal to the Appellate Tribunal has been dealt under section 20 of the act. The term appeal is not defined in the act. It is treated as continuation of the application originally filed in the tribunal. This provision for appeal against the order of judgment. The subsection (1) permits an appeal against an order made or deemed to have been made by the Tribunal to an Appellate Tribunal. The order passed by the Civil Court in a matter decided by it though lacks jurisdiction can be challenged by the aggrieved party before the Appellate Tribunal23. Recently in the case of Aravindakshan v/s Federal Bank Ltd.24, it was held that if the suit instituted before the civil court is well within the jurisdiction merely because the decree is passed exceeds Rs 10 lakh, the forum for preferring an appeal would not be changed. The period of limitation for filing an appeal is 45 days from the date of the receipt of the order by a party. As soon as the order is pronounced the copies are given to the party concerned if they are ready on the same day. But when the copies of the order are not ready on the date of the pronouncement of the order they are communicated by the registered post to the applicant and the defendant. In the former case the limitation starts from the date of the pronouncement of the order and in the latter case from the date of the receipt of the order by the party by the registered post. Deposit Amount of Debt due on filling appeal: The aggrieved party against whom an order is made by the tribunal determining the quantum of liability of debt of such person may prefer an appeal to the Appellate Tribunal under section 20 of the act. But it is subject to depositing 75 % of the amount of debt so determined in to the appellate tribunal. In the case of Umakant Agrwal and another v/s Punjab National Bank and Others25, the Punjab and Haryana High Court held that pre condition of the deposit of 75% of the amount of debt determined by the tribunal for taking appeal on file is not violative of Article 14
23 24

CJ Glenny v/s Catholic Syrian Bank, 2004 (1) BC 85 Kerala HC 2007 (II) BC 563 Kerala H.C 25 AIR 1999 P&H 80.

of the constitution of the India. There is discretion to the Appellate Tribunal to waive or reduce the amount to be deposited depending on the circumstances of the case. In case the party going in appeal has not pleaded any financial hardship the appellate tribunal can decline to allow the application for reduction of deposit.26 In the similar case Ramesh Kanji Maskai & Others v/s SBI27, it was held that since no strong reason has been shown to the Appellate Tribunal to exercise its discretion to waive the deposit the tribunal directed the appellant to deposit Rs. 95 lakh within 8 weeks though the claim was more than Rs. 10 crore.

Procedure and powers of the Tribunal and Appellate Tribunal: As regards to the procedure and power of the Tribunal and Appellate Tribunal, it has been dealt under section 22 of the act. It is an important section dealing with the procedure and powers of the tribunal and the appellate tribunal. The Tribunal and Appellate Tribunal are not bound by the procedure of the Civil Procedure Code. The act has its own rules and the respective tribunals have their own regulations of the procedure. The tribunals are guided by the principle of the natural justice.28 The principles of natural justice are not embodied in any statute but they are legal concepts which ensure fair play in rendering justice. The Tribunal and Appellate Tribunal have adopted certain powers of the Civil Court under Civil Procedure Code. The powers of the Civil Procedure Code which has also been adopted by the Debt Recovery Tribunal are as follows: a) b) c) d) e) f) g) Summoning and enforcing the attendance of any person and examining him on oath Requiring the discovery and production of documents. Receiving evidence on affidavits. Issuing commissions for the examination of witnesses. Issuing commission for examination of the documents Reviewing its decisions Setting aside any order of dismissal of any application for default or any order passed by it

ex parte h)
26 27

Any other matter which may be prescribed

Green Carrier and Contractors M/S. v/s Allahabad Bank, I (2002) BC 27. DRT. II 2005 BC. 139 DRT. Mumbai. 28 Sai Udyog Pvt. Ltd v/s Central Bank of India, 2007 (II) 59 DRAT, Allahabad

Right to legal representation and presenting officers: Section 23 of the act deals with the right to legal representation and presenting officers. This section deals with authorization of legal practioners by the applicant banks or financial institution to present their cases before the tribunal or appellate tribunal. Under this section the defendant himself can present his case in person or through a legal practioner or any of his own officers. The law relating to financing is distinct subject. The provision of engaging their officers by banks and financial institution and defendant is evidently made to bring down the litigation expenses and for properly conducting cases in these Special Tribunals and Appellate Tribunals. Limitations: Though the Limitation Act, 1963 is a comprehensive statute for the purposes of this Act, its application shall only be to the extent it is required for enforcing the securities and adjudication of the claims of the banks and financial institution. Section 24 of the Act provides the scope and applicability of the Limitation Act, 1963 to the application made by the banks and financial institutions. It enjoins that the provisions of the Limitation Act shall as far as may be applying to the application filed in the tribunal. The provision is mandatory. In the case of Indian Bank v/s HUMER Mumtaz & Others29, while dealing with guarantee and continuing guarantee held that section 129 of the contract act does not say time barred debt would come under the purview of continuing guarantee.

CONCLUSION An Asset Reconstruction Fund with adequate resources was considered as a one-time remedy for recovering and clearing the piled up NPAs of nationalized banks. The thinking first surfaced with the Second Narasimham Committee Report. An important aspect of the continuing reform process is thus to reduce further the high level of NPAs as a means of institutional strengthening. While there is reason to expect that with a combination of policy and institutional development, new NPAs could in future be lower than hitherto, the problem remains of the huge backlog of existing NPAs which impinges severely on banks performance and their profitability. Several approaches are possible. The earlier Committee had suggested the creation of an Assets
29

I (2006) BC 72 DRAT. Chennai.

Reconstruction Fund (ARF) to take these assets off banks books at a discount. Recapitalization through infusion of capital is another approach and has been used in the case of some banks. In the last six years massive budgetary funds have been used for recapitalization of public sector banks. This a costly and over time, not a sustainable option. The problem, however, remains and consideration would need to be given to revisiting the concept of an ARF." The recovery climate in cooperatives has been further vitiated by across the board loan waivers announced in the past. It is increasingly being recognized that such loan waivers penalize the honest borrowers and reward defaulters. The state governments often resort to announcing interest rate subsidies which leads to a general tendency of delaying repayment in anticipation of such announcements. The Task Force feels that a decision needs to be taken at all levels that loan waiver or postponement of recoveries and granting of interest rate subsidies for populist reasons would not be made in future. The Task Force is of the view that powers for expediting procedures for recovery of cooperative dues should invariably be delegated to and vested in the officials of cooperative credit institutions themselves preferably in higher tiers at the district and state levels. Many of the PACS do not have enough loan assets to cover their liabilities to the DCCBs. This imbalance has adversely affected the long term viability of PACS. The Task Force re-emphasizes that improving recoveries at the level of PACS and PCARDBs is the key for the revitalization process of the cooperative credit institutions. The Debt Recovery Tribunals (DRT) were operationalised for recovery of commercial banks' dues where individual loan outstanding were above Rs. 10 lakh. Task Force suggests that the provisions of the existing DRT may be made applicable to cooperative banks also where loan size is more than Rs.1 lakh so as to expedite recovery of chronic over dues. In regard to the over dues in the long-term structure, Task Force suggests that the SCARDBs or PCARDBs be allowed the right of foreclosure of mortgages in the case of willful defaulters. This should substantially improve recovery position of such institutions and pave the way for securitization of mortgage loans to raise resources from the market at reasonable rates. This may require some changes in the state cooperative laws which need serious consideration with a sense of urgency. With a view to tackling the problem of over dues, the Task Force is of the opinion that there is a need to evolve compromise or settlement procedure for closing of long pending overdue loans. For this purpose, a committee may be constituted at the district level. This committee may advise

the base level units also. An authorized person from the base level unit may be invited at the DCCB level for taking decisions on write-off. Fresh eligibility for such borrowers should be considered on merits and not as a matter of rule, provided the default is not willful. Lessons from the system operating in commercial banks may be suitably drawn by the cooperative banks.