Tools For Debt Recovery

    The Recovery of Debts Due to Banks and Financial Institution Act, 1993 (“DRT Act”)
    Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
    (“SARFAESI”).
    Code of Civil Procedure, 1908 (“CPC”)
    Indian Contract Act, 1872
    Specific Relief Act, 1963.
    Negotiable Instruments Act, 1881(“NI Act”).
    Companies Act, 1956
    Indian Penal Code, 1860(“IPC”).
    Transfer of Property Act, 1882. (“TP Act”)
    Law of Torts



Debts Recovery Tribunal (under DRT Act, 1993)
 

The DRT Act was enacted in the year 1993. This is a forum for recovery of debts due to banks and FI’s, for sums above Rs. 1 million. DRTs follow summary procedure. Once a claim is adjudicated, the DRT issues a Recovery Certificate for the amount found due and payable. Execution proceedings are initiated by the Recovery Officer. The DRT has a self-contained mechanism and procedure for execution of Recovery Certificates.



Object Of Enacting SARFAESI
 

    Setting up of asset reconstruction companies (ARCs). Arcil was incorporated under section 3 of the Act and is     regulated by RBI by enacting various regulations from time to time.
    Securitization of Assets
    Enforcement of securities without the intervention of the court
    Banks/FIs to choose mode/option of recovery
    Protection against SICA
    Freedom to Banks/FIs for disposal and appropriation of assets



Enforcement Of Security Interest
 

    Security interest can be enforced by secured creditors without intervention of court/tribunal.
    The account must be a NPA account.
    Applicable only when aggregate debt is above Rs 100,000.
    This Act does not apply to any security interest created in agricultural land.
    Secured creditor to issue demand notice of 60 days to the Borrower.



Measures For Asset Reconstruction By ARCs
 

    Proper management of business by change in, or takeover of the existing management
    Sale or lease of part or whole of the business
    Rescheduling the payment of debts
    Enforcement of security interest
    Settlement of dues
    Taking possession of secured assets
    Act as an agent/manager for Bank/FI to recover dues on their behalf
    Act as a receiver if appointed by any court or tribunal



Area To Be Explored - Section 9 of the SARFAESI for:
 

    the proper management of the business of the borrower, by change in, or takeover of, the management of the
    business of the borrower;
    the sale or lease of a part or whole of the business of the borrower



 

Though this can be an alternative mechanism to measures under section 13 of SARFEASI for expediting the recovery procedure, it could not be explored or implemented yet, due to absence of any guideline from RBI in this regard.



Winding Up

    In case a company is unable to pay its debt, the court has the power to wind up the company [Sec 433].
    Sec. 433(e) covers a company which is unable to pay its debts:
            Inability to pay debt amplified in sec. 434
            A creditor with due of Rs. 500 (amended to Rs 100000, not effective) or more serves a demand by
             registered post
            Company neglects to pay, secure or compound the same in 3 weeks
            Execution of a decree returned unsatisfied
            Court is otherwise satisfied company is unable to pay debts
    Distribution of dues is done as per section 529 of the Companies Act, 1956.



Remedy Under CPC

    Where the amount due to the Bank is under one million, summary trial under Order 37 is the principal remedy.
    This applies to:
            Suits upon Bills of Exchanges, hundies or promissory notes
            Suit filed for recovery of a debt/money payable on a written contract, or
            Amount to be recovered is a fixed amount of money, or a debt other than a penalty, or
            A guarantee, where the claim against the principal is in respect of a debt or for money only
    Defendant is allowed to defend only if he files an affidavit.
    If by affidavit by Defendant, it appears that he has no defense, then court declines such permission and passes
    necessary orders.



NI Act, 1881

    Relevant Provision: Section 138 of the Act
    Quasi-criminal action by the payee of a cheque against the drawer in case of dishonour of a cheque due to
    insufficiency of funds
     Requisites:
            Notice of 30 days of dishonour
            Non payment by the drawer within 15 days of receipt of notice
    Trial by Metropolitan Magistrate or Judicial Magistrate of first class



Other Remedies For Dishonour Of Cheque
 

In extension, the remedies under the NI Act, the payee of the cheque also has the following remedies:


 

    To file a civil suit for Fraud
    To file a civil suit for Breach of Contract
    To file complaint under section 420 under the Indian Penal Code, for cheating.
    To file suit for deception under the law of torts
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