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The Union finance ministry-constituted working group has recommended radical overhaul of the existing provisions of the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 so that recovery of sticky assets in the banking sector is effected expeditiously.
The group has sought introduction of summary procedures similar to order 37 of the Code of Civil Procedure, 1908, which allows filtering of frivolous claims, to discourage defendants from raising vexatious and sham defenses in order to gain time and delay the adjudication.
Presently, under Section 19 of the Act, DRTs are not able to pass any order unless the evidence of both the applicant and the defendant is complete. In sharp contrast money suits filed by banks and financial institutions, which are invariably supported by documents signed by parties, in civil courts are filed by and disposed off under the summary procedure.
The group, therefore, felt that Section 19 should be suitably amended by incorporating the summary procedure provisions of the code for speedy and effective disposal of applications filed before the DRTs.
Further, the group found that absence of the requirement for payment of fee encourages frivolous counter claims. Even in a civil suit, the defendant has to pay the required court fee, if he desires his counter claim to be examined.
Therefore, the group has pushed for amendment to Section 19(8) of the Act to provide that the defendant can set up the counter claim on payment of a prescribed fee.
The group has pitched for an amendment to Section 19(12) of the Act to the effect that all alienations and transfers in breach of prohibitory orders are void.
It observed that although the Tribunals grant orders of injunction against the defendant borrowers, restraining them from transferring, alienating or otherwise dealing with or
disposing off any properties or assets belonging to them, the defendant borrowers continue to alienate/ transfer properties.
This is because under the Act, the consequence of violation or breach of injunction orders is only confinement in civil prison or attachment of properties of the person who commits breach. This provision is not a deterrent, as it does not invalidate the transfers/ alienations.
A provision to offset the effect of first charge provisions should be incorporated in Act. The group pointed out that the sales tax laws in the country, being within the domain of state governments, contain provisions such as first charge for sales tax dues in derogation of the rights of the secured creditors.
These provisions discourage improvement of credit availability and goes against the risk mitigation in the financial system.
The working group has recommended that a bank or a FI should be permitted to join proceedings against a person filed by any other bank or FI earlier against the same person and pending before the DRT at any stage before the final order is passed only in deserving cases e.g. where loan documents or the securities of both the banks are common or both banks were party to consortium lending.
It felt that the DRT must have the authority to allow or disallow such joining depending on the facts and circumstances of each case.
To help speedier trials before the DRTs as also to curb the multiplicity of proceedings against the same person, currently Section 19(2) of the Act allows a bank or a FI to join the proceedings against a person filed by any other bank or FI earlier against the same person and pending before the Tribunal at any stage before the final order is passed.
But in practice any bank joining afresh in a proceeding, in which final arguments have already been heard, delays the final disposal of such proceedings.