Recovery Law

In the absence of special legislation, recovery of its dues had been a hectic exercise for Banks prior to the enactment of The Recovery of Debts due to Banks and Financial Institutions Act, 1993. Non-performing Assets were growing and a need was felt to reduce the Non-performing Assets of the Banks drastically. Under this Act, the Banks are entitled to approach the Tribunal by filing an Original Application which is similar to filing a suit for recovery in Civil Court proceedings under the code of civil procedure, except that the procedure is simpler and the remedy efficacious. However, this objective aimed at reducing Non-performing Assets could not be achieved despite the enactment of Recovery of Debts due to Banks and Financial Institutions Act, 1993 thereby leading to the enactment of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (widely referred to as the SARFAESI Act). Under this new Act, the lenders are empowered to take into their possession the secured assets of their borrowers just by giving them notices, and without the need to seek orders to such effect through the Court process in usual recovery proceedings under the Code of Civil Procedure.

The Constitutional validity of "The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" has been upheld the Supreme Court and the Courts have been given guidelines from time to time as to how the various provisions of SARFAESI Act, 2002 should be interpreted. The Apex Court and even the High Courts of various states have discouraged defaulters and/ or borrowers in directly seeking relief and remedy before the High Courts in SAFAESI matters unless warranted on the facts and circumstances of a particular case. However, the decision of the Debt Recovery Tribunals (DRT and/ or DRAT) is not final, and may be subjected to judicial review by the High Court under articles 226 and 227 of the Constitution. In some of the cases, the High Courts have come down heavily on the Banks for their unwarranted actions under SARFAESI Act, 2002.

Though the Reserve Bank of India has prescribed several measures and yardsticks which the Bank ought to follow and apply before declaring an account as NPA, without application of these suggested methods, the Banks declare an account (in financial crisis) as a NPA and proceed with Recovery measures. There has been a step-wise methodology with responsibility on the Bank's side to nurse, restructure, and rehabilitate any sick Industry or Enterprise. However, very rarely do most of the Bankers follow the prescribed exercise and take any steps to revive the NPA account into a performing one.

Ironically, the Corporate Sector are partially blessed with shelter under CDR and BIFR schemes. RBI from time to time issues Guidelines on the CDR (Corporate Debt Restructuring) wherein the Lender Bank need not classify the account as NPA and the Borrower is rejuvenated. Bankers restructuring of debt to SMEs and SSIs would be welcome move to poise industry growth.

Lawyers at Legaleye Associates provide dedicated assistance to Clients who are facing debt collection lawsuits and debt collection harassment or abuse from creditors and / or collection agencies. The firm seeks to protect debtors having a genuine cause and merit. Many debtors and defaulters are made victims of unfair or illegal collection actions on the part of creditors and debt collectors. The number of people who are sued number in the hundreds of thousands.