The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) is a landmark legislation enacted to streamline the process of recovering debts due to banks and financial institutions. Against the backdrop of mounting non-performing assets in the early 1990s, this Act was introduced to ensure faster adjudication of claims and reduce the burden on traditional civil courts. Over the years, the Act has played a pivotal role in balancing the interests of financial institutions and borrowers, thereby strengthening the banking sector.
Constitutional Validity of the Act
The constitutional validity of the RDB Act was challenged on various grounds, including the argument that it infringed upon the jurisdiction of civil courts under the Constitution. However, the Supreme Court upheld its validity, noting that Parliament was empowered under Entry 45 of the Union List (Loans and Banking) to enact the law. The Court emphasized that speedy recovery of debts owed to banks and financial institutions was in the larger public interest and essential for economic stability.
Extent, Commencement, and Application
- Extent: The Act extends to the whole of India, except the State of Jammu and Kashmir (prior to the abrogation of Article 370).
- Commencement: It came into effect from 24th June 1993.
- Application: The Act applies to banks and financial institutions as defined in the legislation. It covers cases where the debt owed is not less than ₹20 lakh (the threshold has been revised over time by notifications).
Key Definitions
The Act defines several critical terms central to debt recovery:
- Debt: Includes any liability claimed as due from a person by a bank or financial institution, whether secured, unsecured, assigned, or otherwise.
- Bank: Includes public sector banks, private sector banks, foreign banks operating in India, and other notified institutions.
- Financial Institution: Includes state financial corporations, IFCI, IDBI, and other notified entities.
Establishment of Tribunals
The Act provides for the establishment of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs):
- Debt Recovery Tribunals (DRTs): These are the first-level forums with the power to adjudicate debt recovery claims filed by banks and financial institutions.
- Debt Recovery Appellate Tribunals (DRATs): These hear appeals against orders passed by DRTs.
Jurisdiction, Powers, and Authority of Tribunals
- DRTs exercise jurisdiction over debt recovery cases that exceed the prescribed monetary threshold.
- Civil courts are barred from entertaining matters that fall within the jurisdiction of DRTs, ensuring speedy disposal without overlapping litigation.
- Tribunals have powers akin to those of a civil court, including summoning witnesses, taking evidence on affidavit, and reviewing matters.
- DRATs serve as the appellate authority, and appeals must generally be filed within 45 days of the DRT’s order.
Procedure of Tribunals
The procedure of DRTs and DRATs is designed to be less formal and faster than ordinary civil courts:
- They are not bound by the technicalities of the Code of Civil Procedure, 1908 (CPC), but guided by the principles of natural justice.
- Applications are filed by banks/financial institutions, followed by responses from borrowers or defendants.
- Evidence can be taken on record expeditiously through affidavits and documentary proof.
- Orders are binding and enforceable like decrees passed by civil courts.
Recovery of Debts Determined by Tribunal
Once a Tribunal passes an order to recover debt:
- A Recovery Officer is appointed to execute the order.
- Recovery can be made by attaching properties, arrest, and detention of the debtor, or by alternative modes specified under the Act.
- The Recovery Officer functions with powers similar to those available under the Income Tax Act for recovery proceedings.
- In case of failure to comply voluntarily, coercive measures may be applied to ensure recovery.
Miscellaneous Provisions
The Act also makes provisions for:
- Transfer of pending cases from civil courts to DRTs.
- Overriding effect on inconsistent laws to maintain exclusivity and speed in the recovery mechanism.
- Penalties for giving false information or failing to comply with Tribunal orders.
- Protection of actions taken in good faith by tribunal members or recovery officers.
Conclusion
The Recovery of Debts and Bankruptcy Act, 1993 marked a decisive step towards strengthening financial discipline in India. By establishing dedicated tribunals, the Act significantly reduced the delays associated with traditional litigation and gave banks a specialized forum for debt recovery. Although subsequent laws like the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC) have further refined the framework, the RDB Act remains an important foundation of India’s debt recovery ecosystem.
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