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Recovery of debts due to banks in India


The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is a piece of one such regulation that spotlights on reinforcing the privileges of the secured creditors against the defaulting debtors. It was sanctioned after the suggestions of Narashiman Committee-I and introspecting Committee under Andhyarujna in substitution of the Recovery of Debts due to the Banks and Financial Institution Act, 1993. This procedural law and review essentially, set up the idea of Asset Reconstruction Company (ARC), letting the banks sell their Non-Performing Assets (NPA) to the ARC. The primary Asset Reconstruction Company of India, ARCIL, was set up under this Act.

Indian banks and financial establishments had since a long been enduring to recover debts and implement protections from the defaulters. The Narasimhan Committee of 1991 suggested the setting up of Special Tribunals like DRTs (Debt Recovery Tribunals) and DRATs (Debt Recovery Appellate Tribunals), to smooth out such cycles. The Committee’s suggestion prompted the authorization of Recovery of Debts Due to Banks and Financial Institutions Act (“RDDBFI”) 1993, from which DRTs and DRATs infer their power to decree on debt recovery matters. Since its initiation, there are 39 DRTs and 5 DRATs working in the country. India right now houses just 5 DRATs which are situated in Mumbai, Delhi, Kolkata, Chennai, and Allahabad. The RDDBFI Act is one of the principal lender cordial instruments set up where the banks can resort to confiscating secured assets via DRT’s. The number of instances of cheats detailed by banks declined during 2020-21 when the Covid pandemic attacked the country, as reported by the RBI.

SAFAESI Act, 2002

The motivation behind sanctioning of the SARFAESI Act was to eliminate the time delay caused to the Banks for the recovery of loans. It is considered as a fundamental function of the banking framework and an inappropriate postponement caused to such activities can’t be empowered. Consequently, the banks wished to lessen Non-Performing Assets (NPA) through quicker recovery. Since the recently sanctioned law specifically the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, neglected to fulfil the plan of the authorization prompting a substitution. Consequently, the SARFAESI Act, 2002 appeared.[1]

Constitutional Validity of SARFAESI

Mardia Chemicals vs Union of India

The constitutional validity of SARFAESI was attacked, specifically Sections 13 (enforcement of security interest) 15 (manner and effect of taking over of management) 17 (application against measures to recover secured debts) 34 (civil court not to have jurisdiction) on the premise that these areas are unreasonable and arbitrary. IDBI Bank served a notification upon Mardia when the Act came into power. Mardia defaulted approached Court where various comparable petitions were clubbed together and addressed together.

The Supreme Court held that Section 13 was intrinsically legitimate. Section 17(2) changed from “request” to “application”

Now segment 13 says that the bank needs to think about all portrayals of a borrower and needs to answer inside 7 days (which was subsequently changed to 15 days).

Under area 17, albeit peripheral heading continued as before, “appeal” was replaced by “application” inside the segment. Presently DRTs have jurisdiction for the rights of tenants in a property that is kept as security. In such cases, the person who documents the application (assuming he satisfies the prerequisites) gets the property. Section 18 was likewise substituted marginally. At the point when an appeal is preferred before the DRAT half of the sum must be stored which can be diminished to 25%. A comparative right of waiver was additionally given to DRT under Section 17.[2]

Debt Recovery Tribunal

Under 17 of the RDDBFI Act [3], DRT has the power to engage any application from banks and monetary organizations, to recover loans for such banks and monetary establishments. DRAT being the Appellate Tribunal has the jurisdiction to engage requests against any request made by a DRT under the Act. Notwithstanding, presently, under 18 of the Act, different courts are banned from investigating matters of obligation separated from the Supreme Court and High Court, who get their power from Article 226 and 227 of the Constitution.

Methodology for DRAT

Presently, under 20(3) of the RDDBFI Act, an appeal with the DRAT should be recorded within a period of 45 days from the date on which the duplicate of the order of the Tribunal is received. Nonetheless, the proviso to 20(3) states that the Appellate Tribunal may likewise permit an appeal after the expiry of 45 days if there is an adequate reason to demonstrate that the appeal couldn’t have been documented before. DRAT can be approached in case of interim relief to be obtained or miscellaneous applications, which forms a part of the original applications.

Amendments to the RDDBFI Act after IBC indicated the fifth Schedule of IBC

1. The title has been changed to incorporate people and partnership firms into its ambit, rather than being simply restricted to banks and monetary establishments.

2. Under 3 sub-segment 1 (A) was added which asserted that the Central Government would have the control over the number of DRTs and its seats as it might consider significant.

3. 8 was revised, to entitle DRAT to hear appeal matters against orders made by Adjudicating Authority under Part III of IBC.

4. 17 was altered so DRTs have circuit sittings in all locale district headquarters. In addition, DRTs a DRAT were allowed powers and ward to engage applications as under Part III of IBC.[4]

Difficulties faced by Debt Recovery Tribunals

  • Most DRTs are over-burdened with some Tribunals in significant urban areas dealing with undeniably more cases it can preferably deal with at a given time. This is adversely influencing the achievement pace of the Tribunals.
  • Borrowers quite often take on postponing strategies by documenting claims against loan specialists in civil courts.
  • DRTs are not outfitted to manage complex inquiries of law and developing strategies and procedures of submitting misrepresentation or fraud. Under 40 DRTs are set up the present moment and they are not adequate to deal with the enormous volume of cases emerging across the nation over.

Remedial measures 

Amendments made to the RDDBFI Act in 2016-

  • It gives time limits in the different steps of the mediation process.
  • Central Government is empowered to uniform procedural standards across all DRTs and DRATs.
  • Expanding the retirement age of Presiding Officers and Chairpersons.
  • Banks to document cases in DRTs having jurisdiction over the region of the bank office where the debt is pending rather than the defendant’s area of home or business.
  • Insolvency and Bankruptcy Code gave powers to DRTs to consider cases of bankruptcy from individuals and unlimited liability partnerships.[5]

Bank frauds reported in India during 2020-2021

Despite the fact that commencement of new indebtedness procedures under the Insolvency and Bankruptcy Code (IBC) of India was suspended for a year till March 2021 and Covid-19 related debt was avoided from the meaning of default, it comprised one of the significant modes of recoveries in terms of the amount recovered.[6] The Centre introduced the IBC in 2016 to resolve claims including insolvent organizations. The IBC has 255 segments and 11 Schedules.[7]

IBC was expected to handle the terrible credit issues that were influencing the banking framework. It accommodates a period-bound cycle to determine bankruptcy. At the point when a default in reimbursement happens, creditors gain control over the borrower’s resources and should accept choices to resolve indebtedness. Under IBC, account holders and lenders both can begin ‘recovery’ procedures against one another. Organizations need to finish the whole bankruptcy practice within 180 days under IBC.[8]


The rising NPAs and debt issues are harming the financial business and the economy overall. Regardless of its numerous deficiencies, DRTs should be strengthened because disappointment in the debt management will adversely affect banking, venture, and future monetary improvement of the country. Measures like setting up more DRTs, determining severe timetables for different phases of settling, and equipping them to manage complicated cases will go far in clearing the forthcoming cases. Further, the RBI likewise needs to foster arrangement measures to address NPA issues.

The IBC has taken its first steps to regularize the bankruptcy process in India. The IBC has carried plenty of changes in the insolvency laws in India and plans to decrease how that has saddled the economy in the course of the most recent couple of years.

[1] LEX LIFE INDIA’S EXPLAINED SARFAESI ACT, (last visited Jan. 10, 2022).


[3] LEGISLATIVE GOV’S DEFAULT FILES, (last visited Jan. 11 2022).

[4] Adv Mahesh Sitaram Dhannawat, Debt Recovery Tribunals- Structure and Processes, IPLEADERS BLOG (Jan. 10, 2022, 3:28 PM),

[5]CLEAR IAS’S DEBT RECOVERY TRIBUNLAS, – :~:text=Issues with Debt Recovery Tribunals,, dues of workmen, etc. (last visited Jan. 17, 2022)

[6] BUSINESS STANDARDS’S WHAT IS IBC, (last visited Jan. 17, 2022).

[7] MCA GOV’S THE INSOLVENCY AND BANCRUPTSY OF INDIA, (last visited Jan. 17, 2022).

[8] BUSINESS STANDARDS’S WHAT IS IBC, (last visited Jan. 17, 2022).

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