ASSIGNMENT ON

BANKING LAW

TOPIC: Salient features of the Recovery of Debts due to Banks

and Financial Institutions Act, 1993

SUBMITTED BY:
NAME : Naphisabet Kharsahnoh
ROLL NO : 48
SEMESTER :X
INSTITUTION : DEPT. OF LAW, NEHU
SUBMITTED TO : MR. S. TIWARI

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 TABLE OF CONTENT
I: INTRODUCTION 04

A. Brief history 04

II: MEANING OF DEBT, BANK, FINANCIAL INSTITUTION, TRIBUNAL &

APPELANT TRIBUNAL UNDER RDDB ACT, 1993 06

III: SALIENT FEATURES OF THE ACT 07

IV: ABOUT TRIBUNAL 11

V: OVERRIDING EFFECT OF THE ACT 12

VI: CONSTITUTIONAL VALIDITY OF THE ACT 13

A. Findings of the Supreme Court 15

VII: APPLICATION AND JURISDICTION 16

A. Appeals 15
B. Procedure for the Recovery of Debts 16

VIII: MISCELLANEOUS 17

BIBLIOGRAPHY 18

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 TABLE OF CASES

Delhi Bar Ass. & Others v. UOI & another, AIR 1995 Del 323 13

DK Abdul Khader v. UOI, AIR 2001 Kant 176 13

Union of India & Another v. Delhi Bar Ass. & Others. (2002) 4 SCC 275 13

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 I: INTRODUCTION

As the name of the Act suggest, it was enacted for recovering debts which are due to banks
and other financial institutions.1 In the 20th century Banks and financial institutions were
experiencing considerable difficulties in recovering loans and enforcement of securities
charge with them, the earlier procedure for recovery of debts due to the banks and financial
institutions, has resulted in a significant portion of the funds blockage.2 Thus to ensure
speedy recovery of dues ‘Recovery of Debts Due to Banks and Financial Institutions Act,
1993’ (RDDB ACT,1993) came into picture.

The rationale behind the Act is contained in the Tiwari Committee Report, which states:3

"The civil courts are burdened with diverse types of cases. Recovery of dues due to
banks and financial institutions is not given any priority by the civil courts. The
banks and financial institutions like any other litigants have to go through a
process of pursuing the cases for recovery through civil courts for unduly long
periods."

Apart from performing the key-functions of providing liquidity and payment services to the
real sector and managing financial intermediation process, the banking industry has been able
to provide major credits to all sections of economy.4

A. Brief history

In recent years an urgent need was felt to work out a suitable mechanism through which the
dues, to the banks and financial institutions could be realised. In 1981 a committee under the
Chairmanship of Shri T. Tiwari examined the legal and other difficulties, faced by banks and

1
C.Srivenkatesh Prabhu ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’, available
at http://lawyerslaw.org/the-recovery-of-debts-due-to-banks-and-financial-institutions-act-1993/ (Accesses on
20/04/2020)

2
The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by Debt Recovery Appellant
Tribunal, Chennai, pg. 5.

3
Praveen Raju, ‘Recovery of Debts Due to Banks and Financial Institutions’, available at
http://www.legalserviceindia.com/articles/raju.htm

4
G.S. Dubey, ‘An Introduction to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993- A
Study’, available at www.manuptra.com

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financial institutions and suggested remedial measures including changes in law. This
committee also suggested setting up of Special Tribunals for recovery of dues of the banks
and financial institutions by following a summary procedure. Keeping in view the
recommendations of the above Committees, the Recovery of Debts due to Bank and Financial
Institutions Bill, 1993 was introduced in the Parliament. It was said that the Bill seeks to
provide for the establishment of Tribunal and Appellate Tribunals for expeditious
adjudication and recovery of debts due to banks and financial institutions5

5
See Supra note 2

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 II: MEANING OF DEBT, BANK, FINANCIAL INSTITUTION,
TRIBUNAL & APPELANT TRIBUNAL UNDER RDDB ACT, 19936

Section 2(d). “Bank” means— (i) banking company; (ii) a corresponding new bank; (iii)
State Bank of India; (iv) a subsidiary bank; or (v) a Regional Rural Bank;

Section 2(g). “Debt” means any liability (inclusive of interest) which is claimed as due from
any person by a bank of a financial institution or by a consortium of banks or financial
institutions during the course of any business activity undertaken by the bank or the financial
institution or the consortium under any law for the time being in force, in cash or otherwise,
whether secured or unsecured, or assigned, or whether payable under a decree or order of any
civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and
legally recoverable on, the date of the application;

Section 2(h). “Financial Institution” means— (i) a public financial institution within the
meaning of Section 4A of the Companies Act, 1956 (1 of 1956);

(ii) such other institution as the Central Government may, having regard to its business
activity and the area of its operation in India by notification, specify;

Section 3. Establishment of Tribunal.—(1) The Central Government shall, by notification,

establish one or more Tribunals, to be known as the Debts Recovery Tribunal, to exercise the
jurisdiction, powers and authority conferred on such Tribunal by or under this Act.

Section 8. Establishment of Appellate Tribunal — (1) The Central Government shall, by

notification, establish one or more Appellate Tribunals, to be known as the Debts Recovery
Appellate Tribunal, to exercise the jurisdiction, powers and authority conferred on such
Tribunal by or under this Act.

6
See Bare Act RDDB Act,1993

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 III: SALIENT FEATURES OF THE ACT

(i) The Act applies to all banks including Regional Rural Banks and all India Financial
Institutions. However, State Level Financial Institutions are outside the purview of this Act.

(ii) The provisions of the Act shall not apply where the amount of debt due to any bank
or financial institution or to a consortium of banks or financial institutions is less than Rs.10
lakh or as specified by the Central Government.

(iii) The Central Government shall establish 'Debt Recovery Tribunals (DRTs)' with
pre‑defined areas of jurisdiction. The Tribunal will consist of one person only designated as
'Presiding Officer'. The Tribunal will be provided with one or more 'Recovery, Officers' and
such other officers and employees who will work under the general superintendence of the
Presiding Officer. Central Government will also establish "Debt Recovery Appellate Tribunal
(DRAT)" which shall also consist of one person only designated as 'Chairperson'.

(iv) The Tribunals shall exercise powers and authority to entertain and decide applications
from banks & financial institutions for recovery of debts and no court or other authority shall
have any jurisdiction (except the Supreme Court and a High Court exercising jurisdiction
under Articles 226 & 227 of the Constitution).

(v) Where the bank or a financial institution has to recover a debt, application in the
prescribed form, will have to be filed with Tribunal. The Tribunal will issue summons
requiring the defendant to show cause within 30 days of the service of summons. Before
passing any order including interim order both the applicant and defendant will be given the
opportunity of being heard. The Tribunal may also consider counter claims/set off from the
defendant.

(vi) The Tribunal may, after being satisfied, consider to exclude counterclaim of the
defendant and dispose of the same independently, if an application in this respect is filed by
the applicant.

(vii) The Tribunal may make an interim order by way of injunction/stay/ attachment,
debarring defendant from transferring, alienating or disposing of any property and assets
without its prior permission.

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(viii) At any stage of the proceedings, if the Tribunal is satisfied that the defendant intends
to obstruct or delay or frustrate the execution of the recovery order, he may be ordered to
furnish security of specified sum failing which attachment orders may follow.

(ix) The Tribunal may appoint Receiver of any property and confer upon him all such
powers like bringing and defending suit in the courts of filing; defending application before
the Tribunal; realisation, management, protection, preservation and improvement of the
property; collection of rents and profits arising from the property and application and disposal
of such rents an profits; execution of documents; or other powers which the Tribunal thinks
fit.

(x) The Tribunal may also appoint Commissioner for the preparation of an inventory of
the properties of the defendant or the sale thereof.

(xi) Disobedience of or breach of any of the terms of the order of the Tribunal made
under clauses (vii), (viii), (ix) and (x) above, may result in detention of the guilty person in
civil prison for a term not exceeding three months.

(xii) The application shall be disposed of, as far as possible, within 180 days from the date
of its receipt. A certificate will be issued to the Recovery Officer for recovery of amount of
debt specified in the certificate.

(xiii) The Tribunal may order to distribute the sale proceeds among the secured creditors
in accordance with the provisions of section 529A of the Companies Act, 1956 and to pay the
surplus, if any, to the company, where a recovery certificate is issued against a company.

(xiv) The Tribunal, issuing recovery certificate, if satisfied that the property is situated
within the jurisdiction of two or more Tribunals, may send the copies of recovery certificate
for execution to such other Tribunals also.

(xv) An appeal may be preferred to an 'Appellate Tribunal' within a period of 45 days

from the date of order. However, the Appellate Tribunal may condone the delay in preferring
an appeal beyond 45 days, if sufficient causes are shown. On receipt of an appeal, an order
confirming, modifying or setting aside the order appealed against may be passed by the
'Appellate Tribunal'. Appeal can be filed by depositing seventy five percent of the amount of
debt as determined by the Tribunal. Appellate Tribunal may, however, waive or reduce the
amount of deposit. No appeal shall lie against an order which is passed by the Tribunal with
the consent of the parties.

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(xvi) The provisions of the Limitation Act, 1963 shall apply to an application made to a
Tribunal.

(xvii) The Recovery Officer, after issuance of certificate by the Tribunal, shall recover the
amount of debt by one or more of the following modes:

(a) attachment and sale of the movable or immovable property of the defendant;

(b) arrest of the defendant and his detention in prison.,

(c) appointing a receiver for the management of the movable or immovable

properties of the defendant.

The modes of recovery include requiring any person who is indebted to the defendant,
to deduct the amount of debt due from defendant from the amount payable to the
defendant. Recovery Officer is authorised to issue notice to any person from whom
money is due or may become due to the defendant. Such person will be required to
deposit the amount with Recovery Officer, who shall grant a receipt for any amount
so paid in compliance with the notice issued. The person so paying will be fully
discharged from his liability to the defendant to the extent of amount so paid. While
executing certificate of recovery, the Recovery Officer may require any person and
any of the officers of a company against whom or which the recovery certificate is
issued, to declare on affidavit the particulars of his or its assets.

(xviii) Notwithstanding anything contained in clause (xix) below, any person aggrieved by
an order of the Recovery Officer may prefer an appeal to the Tribunal within thirty days from
the date on which order is issued to him and the Tribunal may, after giving an opportunity to
the appellant of being heard and after making necessary enquiry, confirm, modify or set aside
the order made by the Recovery Officer.

(xix) The provisions of the Second and Third Schedules to the Income‑tax Act, 1961 and
Income‑tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far
as possible, apply with necessary modifications as if the said provisions and the rules referred
to the amount of debt due under this Act instead of the income‑tax.

(xx) The provisions of this Act are in addition to, and not in derogation of, the Industrial
Finance Corporation Act, 1948, the State Financial Corporations Act, 195 1, the Unit Trust of
India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984, the Sick Industrial

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Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of
India Act, 1989. However, in other matters, the provisions of this Act shall have effect
notwithstanding anything inconsistent there with contained in any other law for the time
being in force or in any instrument ‑ having effect by virtue of any law other than this Act.

(xxi) The term 'Debt', can be expressed to mean any liability inclusive of interest which is
claimed as due by a bank, financial institution or consortium of banks and financial
institutions during the course of any business activity undertaken by them. Such debt may be
in cash or otherwise, secured or unsecured, or assigned, or payable under a decree or order of
any civil court or any arbitration award or otherwise, or under a mortgage. It is further to be
noted that the debt must be subsisting on the date of filing of application with the Tribunal
and is legally recoverable.

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 IV: ABOUT TRIBUNAL

These Tribunals are new set-up of legal instructions to deal with recovery cases relating to
Banks and Financial Institutions. These Tribunals are forum quite different from other legal
forums like Civil Courts. Here only the Banks and Financial Institutions have right to file the
original applications for recovery of their dues. This type of classifications to provide such
privilege to the Banks and to the Financial Institutions is a classification taking into accounts
the NPA’s (Non-Performing Assets) of the Banks and Financial Institution which affect the
economy of the country as such as classification seems permissible under Art. 14 of the
Constitution of India. Summary Procedure are followed in this Tribunal for early disposal of
cases.7

Central Government shall establish 1 or more Tribunal & Appeal Tribunal for recovery of
debts under Section 3 & 8 of RDDB Act respectively. The Tribunal under both the section
(s.3 & s.8) shall consist of one person only referred as Presiding officer under section 4 who
is qualified to be or has been or is a district judge8 & Chairperson of Appellant Tribunal under
section 9 of the Act who is qualified as or has been or is a judge of High Court, member of
Indian Legal Services or has been presiding officer of tribunal for at least 3 years.9 The term
of the office of presiding officer is 5 years or until age of 62 years, 10 whereas the Chairperson
can hold the office of appellant tribunal for 5 years or until the age of 65.11

In Section 1(4) of the Act it has been stated that: “The provisions of this Act shall not apply
where the amount of debt due to any bank or financial institution or to a consortium of banks
or financial institutions is less than ten lakh rupees or such other amount, being not less than
one lakh rupees, as the Central Government may, by notification, specify.”

So for debt amount lying b/w ₹ 1 to 10 lakhs, the provisions of this act does not apply, for
such lesser amounts, the Banks and Financial Institutions can avail the normal remedy of
Civil Courts.

7
See Supra note 4

8
Section 5 of RDDB Act, 1993

9
Section 10 of RDDB Act, 1993

10
Section 6 of RDDB Act, 1993

11
Section 11 of RDDB Act, 1993

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 V: OVERRIDING EFFECT OF THE ACT

Section 34 of the Act states:

"Act to have Overriding Effect –

(1) Save as provided under sub-section (2), the provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for the time being
in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules made there under shall be in addition to, and not in
derogation of, the Industrial Finance Corporation Act, 1948, the State financial Corporations
Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act,
1984 and the Sick Industrial Companies (special provisions) Act, 1985."

The Act has thus an overriding effect over all other legislations except for the ones mentioned
in sub-clause (2), viz, the Industrial Finance Corporation Act, 1948, the State financial
Corporations Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank
of India Act 1984 and the Sick Industrial Companies (special provisions) Act, 1985.12

12
See Supra note 3

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 VI: CONSTITUTIONAL VALIDITY OF THE ACT

After 9 years of evolution of the Act was challenged for its constitutional validity in Union of
India & Another v. Delhi Bar Ass. & Others.13 It was challenged on grounds of
unreasonableness & that it is violative of Art. 14 of the Constitution and that the same is
beyond the legislative competence of the Parliament.

The validity of the Act was firstly challenged before the Delhi High Court in Delhi Bar Ass.
& Others v. UOI & another.14 The Delhi High Court held that the DRT (Debt Recovery
Tribunal) could be constituted by the Parliament even though it was not within the purview of
Articles 323A and 323B of the Constitution of India and that under the expression
'administration of justice ' as appearing in List IIA of the Seventh Schedule to the
Constitution which includes ‘Tribunals’ as well as 'administration of justice'.

The impugned Act was unconstitutional as it erodes the independence of the judiciary and
was irrational, discriminatory, unreasonable, arbitrary and was hit by Art. 14 of the
Constitution. It also quashed the appointment of the Presiding Officer of the Tribunal.

The aforesaid conclusions were on the basis that the Act in particular, section 17 did not have
a provision for a counter claim as provided in the C.P.C and was irrational and arbitrary. The
Act lowered the authority of the HC on the basis of the pecuniary jurisdiction and eroded the
independence of the judiciary since the jurisdiction of the civil courts had been truncated and
vested in the Tribunal. The court referred to DK Abdul Khader v. UOI,15 where it was held
that a Tribunal could not be constituted for any matter not specified in Article 323A & 323B
of the Constitution of India.

A. Findings of the Supreme Court

It was held by the SC that "While Articles 323A and 323B specifically enable the legislature
to enact laws for the establishment of tribunals, in relation to the matters specified therein, the
powers of the Parliament to enact a law constituting a tribunal like a banking tribunal is not
taken away."

13
(2002) 4 SCC 275

14
AIR 1995 Del 323

15
AIR 2001 Kant 176

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It was further specified that the recovery of dues is an essential function of any banking
institution. In exercise of its legislative powers relating to banking, parliament can provide
the mechanism by which monies due to banks and financial institutions can be recovered.
The preamble to the Act states "... for expeditious adjudication and recovery of debts due to
banks and financial institutions and for matters connected therewith or incidental thereto” this
would squarely fall within the ambit of entry 45 of List I of the Constitution.

The SC disagreed with the view taken by the Delhi High Court that the provisions of the Act
are in any way arbitrary or bad in law. In fact it held that the Act has been amended and
whatever lacunae or infirmities existed have now been removed by the amending Act with
the framing of more rules. The view taken by the Delhi High Court was that the Act eroded
the independence of the judiciary since the jurisdiction of the civil courts had been truncated
and vested in the Tribunal. The SC held that the decision of the Delhi High Court proceeds on
the assumption that it is an absolute right of anyone to demand that a civil court adjudicate
his dispute. Whereas Arts 323A &323B contemplates the establishment of Tribunals and this
does not erode the independence of the judiciary, there is no reason to presume that the
banking tribunals and the appellate tribunals so constituted would deny justice to the
defendants or that the independence of the judiciary would stand eroded.16

16
See Supra note 3

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 VII: APPLICATION & JURISDICTION

Section 2(b) defines Application as the application made to the Tribunal under section 19 of
the Act. Section 19 states how the application is made to the Tribunal. Sub section 1of section
19 says that a bank or financial institution for recovery of debt shall make the application to
the Tribunal that comes under its local jurisdiction. On receipt of application for recovery, the
tribunal shall issue a summons requiring the defendant to show cause within 30 days of
service of summons as why the relief prayed should not be granted. The defendant has to
present a written statement against summon within these 30 days. 17 The defendant can either
use set-off of debt [sec. 19(6)] or can file a counter claim [sec. 19(8)] then under sub- sec. 20,
the Tribunal may, after giving the applicant and the defendant an opportunity of hearing, pass
as such order as it thinks fit to meet the end of justice. A copy of every order passed shall be
send to both the parties [sec. 19(21)] and a certificate shall be issued to recovery officer under
sub- sec. 22, this all shall be done by the Tribunal within 180 days from the date of
application [sec.19 (24)].

The Tribunal exercise its jurisdiction under section 17 & 17A of the Act, Debt Recovery
Tribunal is a Tribunal and is not a court. The proceeding before it are initiated on an
application and not by suit. The Tribunal does not pass decree; instead it issues a Recovery
Certificate which is to be executed through Recovery Officer which partakes a character of a
decree and section 18 excludes the jurisdiction of the Civil Courts and other authorities in
regard to matters given in sec. 17. Section 22 states that Debt Recovery Tribunal shall not be
bound by the procedure laid down by the Civil Procedure Court but shall be guided by the
principals of natural justice and shall have powers to regulate its own procedure.18

A. Appeal

A person aggrieved by the order of the Tribunal can pursue Appellant Tribunal under section
20 of the Act. Sub- section 3 of section 20 says that an appeal shall be filled in an Appellant
Tribunal within 45 days from the date of the order made by Tribunal. Section 20(6) says that
appeal filled before the Appellant Tribunal shall be dealt with by it as expeditiously as
possible and shall be finally disposed of within 6 months.

17
Section 19(4) of RDDB Act, 1993

18
See Supra note 4.

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Section 21 says that an appeal shall not be entertained by the Appellant Tribunal unless the
person preferring the appeal has deposited 75% of the amount of the debt due from him as
determined by the Tribunal but Appellant Tribunal has a right to dispense with such condition
in appropriate cases.19

B. Procedure for Recovery Of Debts

Section 25 of the Act provides 3 modes for recovery of debts, namely:

1. Attachment and sale of the movable or immovable property of the defendant;

2. Arrest of the defendant and his detention in prison; and
3. Appointing a receiver for the management of the movable or immovable properties
of the defendant.

Section 28 of Act provides other mode of recovery of debts by recovery officer. The Act
covers recovery of both recovery of both secured and unsecured debts.20

19
Ibid.

20
Ibid

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 VIII: MISCELLANEOUS

Section 31 speaks about transfer of pending cases and Section 31A clarifies that Tribunal can
pass order on the basis of Civil Court decree. Section 32 speaks that employees and officers
of the Tribunal shall be deemed to be public servant within the meaning of Sec. 21 of I.P.C.
Section 33 protects from suit. Prosecution or other prosecution or other proceedings to
Central Government and other officers of Tribunal for the actions which have been taken by
them in good faith. Section 34 provides overriding effect to the Act which has earlier been
discussed. Section 35 empowers Central Government to make provisions for removing the
difficulties in application of the Act. Section 36 tells about the power of Central Government
to make rules, by notification, to carry out the provisions of the Act. Section 37 puts legal
sanctity to the actions taken under the Recovery of Debts Due to Banks and Financial
Institution Ordinance, 1993.21

Thus we can observe that an efficient mechanism is provided in the form of Debts Recovery
Tribunal and the mechanism has proved its worth and utility in the past years by providing
necessary reliefs.

21
See Supra note 4.

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 BIBLIOGRAPHY

1) C.Srivenkatesh Prabhu ‘The Recovery of Debts Due to Banks and Financial

Institutions Act, 1993’, available at http://lawyerslaw.org/the-recovery-of-debts-due-
to-banks-and-financial-institutions-act-1993/ (Accesses on 20/04/2020)

2) The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by Debt
Recovery Appellant Tribunal, Chennai, pg. 5.

3) Praveen Raju, ‘Recovery of Debts Due to Banks and Financial Institutions’, available
at http://www.legalserviceindia.com/articles/raju.htm (Accesses on 20/04/2020)

4) G.S. Dubey, ‘An Introduction to the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993- A Study’, available at www.manuptra.com (Accesses on
20/04/2020)

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