What prevents India's DRT from actually recovering bad debts

The amend notice of 2000 did bring in some amount reason in the authority of the Debts Recovery Tribunal, so far it was not enough to wheedle the big borrowers to agree to the jurisdiction of the DRT (Debts Recovery Tribunal) easily. the lenders constant to grunt under the load of the Non-Performing Asset. This led to the enactment of one more severe act titled as the Securitization and Reconstruction of Financial Assets and Enforcement of safety Interests Act, also call as SRFAESI Act or SRFAESIA for short.

This new Act, the SRFAESI Act, engaged the loan specialists to take into their ownership the secured resources of their borrowers just by giving that notification, and without the need to experience the rigors of a Court system. At first this acquired part of consistence from borrowers and numerous a prepared defaulters hacked up the Bank contribution. However the harder ones punched entire in the new Act as well. This drove Supreme Court striking down specific arrangements and permitting the borrowers an adjudicatory gathering before their properties could be assumed control by the banks. Furthermore, the adjudicatory gathering ended up being the Debts Recovery Tribunal. The DRT now manages two distinct Acts, in particular the Recovery of Debts Due to Banks and Financial Institutions Act and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act. While the point of the both the Acts is one and the same, however their course is distinctive.

The DRT needs to manage remarkable complex business laws inside the tight ambit of the two laws. Throughout the years the DRT have advanced into fine bodies with part of skill. There is a plenty of judgments from the Supreme Court and also the different High Courts which have prepared of the DRTs to diagram their courses. The DRT of India has turned out to be display establishments for some a nation to take after.

The Role of the Debt Recovery Tribunal

Section 17 of the Recovery of Debts Due to Banks and Economic Institutions Act, 1993 [“RDB Act”] provides that the DRT intend to have jurisdiction to “interest and decide requests from banks and financial institutions for recovery of debts owing to such banks and economic associations”. ‘Debt’ is defined in s. 2(g) as any liability which is claimed as due by a bank during the course of business activity. While at first the DRT (Debts Recovery Tribunal) performed well and helped the Banks and Financial Institutions recoup generously vast parts of their non performing resources, or their terrible obligations as they are usually known, however their advancement was hindered when it came to substantial and capable borrowers. So, the rule of the DRT extends not just to debts as usually understood, but to any claim of money that a bank makes during the course of business. Section 18 gives that no court aside from the Supreme Court and the High Court under Art. 226 should have any purview in connection to these matters. In 1995, the lawfulness of the DRT was tested effectively under the steady gaze of the Delhi High Court, which held that the Tribunal couldn't work truly since it didn't have any arrangement for documenting counterclaims. In this way, the RDB Act was revised and the dependability of the changed demonstration was maintained by the Supreme Court. As things stand, borrowers are qualified for record "counterclaims" under section 19 of the RDB Act. 

The inquiry is whether borrowers must pick this cure or whether they are additionally qualified for document an autonomous suit in the proper common court. There are two clashing Supreme Court choices on this point and two others which are questionable. In Indian Bank v. ABS Marine Products, (2006) 5 SCC 72, Indian Bank requested a suit documented by ABS Marine in the Calcutta High Court to be exchanged to the DRT. The Supreme Court held that such an autonomous suit recorded by a borrower couldn't be exchanged to the DRT without his assent, since his entitlement to approach a common court can't be taken away.

Recovery Proceedings by DRT against the Guarantors Are Without Jurisdiction

It is submitted that the recovery proceedings under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as “DRT Act”) against the Guarantors are absolutely without jurisdiction. As per Black’s Law Dictionary, Ninth Edition, at page 1389, “recovery” means the regaining or restoration of something lost or taken away. It follows that the DRT has no jurisdiction to proceed against the Guarantor, as he has not taken any "debt", which he has to repay. 

As per section 4 of the U.S. Statutes of Frauds, 1677 a promise ‘to answer for the debt, default or miscarriage of another person’ is a contract of guarantee. The Guarantor promises to discharge the debtor’s liability if the debtor should fail to do so. The Guarantor’s liability is, therefore, secondary to that of the principal debtor {Guild & Co. v. Conrad (1894) 2 QB 885, 896}. The concept is explained below.

 (i) As per scheme of Indian Contract Act, 1872 ultimately the debt is to be recovered from the principal debtor, either primarily by the creditor or finally by the guarantor. Certainly, there is no mandate of Contract Act that finally the principal debt is to be recovered from the guarantor. (please consecutively refer sections 126, 140, 141 and 145)

(ii) The Guarantor is entitled to submit before DRT and/or Court that the personal guarantee agreement is not based upon a real consent, but was induced by undue influence by the Bank. The consent of the Guarantor having obtained by undue influence by the Bank, therefore, the personal guarantee agreement is voidable at the option of the Guarantor under section 19-A of the Contract Act.

 (iii) It is undisputed that, firstly, there is such an inequality of bargaining power between the Bank and the Guarantor that the Bank can cause economic duress to the Borrower and/or Guarantor; secondly, the personal guarantee agreement is always drawn up one-sidedly.