The banks and financial institutions had been facing numerous difficulties and hindrances in recovering their loans and thereafter getting the securities enforced as charged with them. As a result of which there was felt a dire need to draft an appropriate mechanism via which the banks and financial institutions could manage to recover their stuck up dues. Keeping into purview the need of the hour in 1981, a committee under the guidance and chairmanship of Shri T Tiwari examined and highlighted the legal and other difficulties that the banks and financial institutions were facing and thereafter suggested remedial measures to mitigate the difficulties faced by the banks and financial institutions.
The remedial measures as were suggested by the committee included amendment in existing laws and constituting a special tribunal that would solely work for recovery of dues to banks and financial institutions by adopting a summary procedure. On this note the Recovery of Bad Debts Due to Banks and Financial Institutions Act, 1993 was enacted.
The Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunal (DRATs) were constituted and set up under the Recovery of Debts Due to Bank and Financial Institution Act (RDDBFI Act), 1993 with the primary objective of providing expeditious adjudication along with recovery of debts due to banks and financial institutions. Prior to the establishment of the DRTs/DRATs, the process of recovery of best was quite cumbersome. In the year 1990, more than 15 lakh cases as filed by the banks and financial institutions were pending before various courts. The total amount of these pending cases was around Rs. 6,000 Crore.it is evident to mention that after the establishment of DRTs/DRATs the recovery scenario has improved to some extends. At the end of 2016 there were nearly 93000 cases that were pending before the DRTs all over the country. At present there are 34 DRTs and 5 DRATs functioning in various part of the country.
Compared to the ordinary court procedures, DRTs were able to handle volume of cases with low recovery delay during initial phase of its establishment. Though DRTs had made impact on recovery front, various issues in relation to their performance on ground of rising volume of NPAs began to crop up during the later phase. The reasons for the aforesaid issues were quite evident. Inadequate infrastructure coupled with insufficient number of DRTs had made them incompetent to handle the humongous volume of rising recovery cases.
The rising pendency of recover matters before DRTs had reached an alarming point where it was of dire importance to introduce amendments in the existing mechanism that could curb the situation from worsening. In light of the above a series of amendments were introduced in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 during the year 2016 but these amendments are yet to be enforced.
Through the amendments in the year 2016 the timelines for filing written statement, passing of orders, appeals etc. were significantly reduced to speed up the recovery process. The amendment empowered the Central Government to provide for uniform procedural rules for conducting proceedings in the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal. The retirement age of the Presiding Officer of Debt Recovery Tribunal was increased from 62 years to 65 years and that of the Chairperson of the Debt Recovery Appellate Tribunal was increased from 65 years to 67 years. The provisions for reappointment of the presiding officer and chairperson back to their position were also laid out via the amendment. The amendment shifted the territorial jurisdiction for filing case for recovery from DRT having jurisdiction in defendant’s area of residence or business to the DRT having jurisdiction over the area of the bank branch where the debt is pending for recovery.
The series of amendments did not end up here. There evolved one more new legislation that targeted recovery of a debt in a speedy and time-bound manner. The new legislation introduced was the Insolvency and Bankruptcy Code 2016. The Insolvency and the Bankruptcy Code was enacted to combine and bring in amendment in relation to insolvency process of Corporate Persons, Individuals and Partnership Firms in a duly time-bound manner that would result in maximization in value of assets of the above-mentioned persons; to promote entrepreneurship; availability of credit along with balancing of interest of the stakeholders.
The Code was drafted keeping into account the need of the hour and therefore the target audience that was covered under the ambit of the code included Company; Limited Liability Partnerships; Personal guarantors to Corporate Debtors; Individuals and lastly Partnership & Proprietorship Firms.
Part III of the Code was specifically drafted to cater to insolvency and bankruptcy process for individuals and partnership firms whose amount of default or pending dues are not less than one thousand rupees. On this note the adjudicating authority empowered to deal with the insolvency and bankruptcy matters of Individuals; Partnership & Proprietary Firms is Debt Recovery Tribunal (DRT) that is constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
For undertaking and resolving the matters related to the insolvency and bankruptcy of the individuals and partnership & proprietorship firms, the appropriate adjudicating authority will be the Debt Recovery Tribunal that is situated at the place where the individual debtor actually and voluntarily resides or carries on business or works for gain. Once the concerned Debt Recovery Tribunal is ascertained keeping into purview the territorial jurisdiction thereafter it shall be empowered to entertain and dispose of suits /proceedings by against the individual debtors; claims made by or against the individual debtor and questions of priorities or questions of law or facts.
The adjudicating authorities as prescribed under the insolvency and bankruptcy code have been aligned very carefully and with clear intent. On this note for matters related to insolvency and bankruptcy of individuals and partnership & proprietorship firms its only debt recovery tribunals which are by law empowered to undertake and dispose of the cases therewith. It is very crystal clear that civil courts or authorities therein have no authority to entertain any suit or proceedings on which debt recovery tribunal or debt recovery appellate tribunal have authority as granted by the Code.
Abhishek Jain at MUDS after analyzing and interpreting the Code is of the view that “Failure to repay the home loans would drag the future defaulters to dedicated bankruptcy courts as the Code is seeking to align framework on individual insolvency two years after it revamped such laws for stressed companies.
Three sets of entities will fall under the ambit of individual insolvency provisions. The entities falling under the horizon of individual insolvency would include personal guarantor to corporate debtor; partnership & proprietorship firms and other individual borrowers.”
Role of DRT under IBC
DRT is the adjudicating authority for Individuals, Partnership & Proprietary Firms under the IBC has been vested with various powers and roles. According to subsection (2) of section 179 of the Code, the DRT shall have the power to entertain and dispose of the following:
- Any application or proceeding by or against the Individual debtor ;
- Any claim made by or against the Individual debtor and
- Any question of priorities or any question of law or facts arising out of or in relation to the insolvency and bankruptcy of the individual debtor or firm under this code.
Jurisdiction of DRT
The territorial jurisdiction shall be the place of residence (actual or voluntary) of the individual debtor or the place of business or any other place from where he works for gain. On this note, the application for initiating the insolvency resolution process or Bankruptcy proceedings against individuals or partnership firms shall be filed before DRT having jurisdiction over the place at either of the aforesaid mentioned venues.
Section 180 of the code also states that the Civil Courts shall not have any authority to entertain any suit or proceedings in respect to any matter on which DRT has the power to entertain under the code. Also the Section 9 of the Code of Civil Procedure, 1908 gives power to the courts to try all the suits of civil nature except suits from which such courts are expressly or impliedly barred. Therefore by being barred by section 180 of the code, Civil Courts shall not have jurisdiction over matters on which DRT has jurisdiction.
After having unveiled the fact that DRT is the major and sole authority for admitting and resolving the matters related to insolvency and bankruptcy of individuals and partnership & proprietary firms, it is of utmost importance to understand the assigned flow and the timelines for presenting the appeals forth the various adjudicating authorities aligned for the individuals, partnership & Propriety firms.
The adjudicating authority for corporate persons shall be DRT. The appeals if any against the order of DRT shall be filed before DRAT. Further, any person aggrieved by the order of DRAT may file an appeal to the Supreme Court. The appeal filed before the Supreme Court shall be only on the question of law arising out of order passed by order of DRT or DRAT.
The adjudicating authority for Individuals and partnership firms as mentioned above shall be the DRT having territorial jurisdiction over the place where the individual debtor actually or voluntarily resides or carries on business or personally works for gain.
Once the application under IBC is admitted by the DRT against the individual or partnership firm then any person aggrieved by the order of DRT may prefer an appeal before the DRAT. Every appeal shall be filed before DRAT within thirty days. An appeal can be filed beyond thirty days if DRAT is satisfied that there was a sufficient cause for not being able to file within the thirty days duration but then within fifteen days period after thirty days only.
If a person is not satisfied and is aggrieved by the order of DRAT then in such a case he can file an appeal to the Supreme Court. The application to be filed shall be based only on the question of law that arouse out of the order only. The application before the Supreme Court shall be filed within forty-five days from the date of receipt of order of DRAT. However, the Supreme Court may allow extension beyond forty-five days if it is satisfied that person was prevented by sufficient clause. The extension allowed shall be only fifteen days beyond the forty-five days duration.
The Time limit for disposal of the Appeal
The application shall be disposed off by DRT or DRAT within the period specified in the Code. However, if the application is not disposed off within the prescribed time limit, then the DRT or DRAT shall record the reason for delay in writing. The Chairperson of DRAT shall take the reason for a delay into consideration and thereafter if required may extend the period prescribed in the act by another period not exceeding ten days.
Also Read:- Adjudicating Authority for Corporate Persons
Vide clear and bifurcated demarcation of adjudicating authorities the appeals will be entertained and disposed off in a lucid and time-bound manner
Hope this article was informative in providing insight about adjudicating authority for individuals and partnership firms.
Stay connected with MUDS for more updates.